Cheltenham & Gloucester Plc v Ashford

MIRAS relief at source depends on statutory eligibility and prescribed entry conditions. A remortgage advance used partly to repay a qualifying housing loan and partly to replace non-qualifying overdraft borrowing is not, as a single loan, relevant loan interest. The borrower must either split the borrowing into distinct qualifying and non-qualifying loans or obtain Inland Revenue approval. A lender is not obliged, contractually or statutorily, to restructure the advance or credit the mortgage account as if tax had been deducted. Failure to obtain MIRAS does not necessarily remove substantive tax relief, which may remain claimable through the tax return or PAYE coding.

The claimant mortgagee brought possession and payment proceedings concerning a mortgage secured on the defendant’s home. The mortgage advance included money used to repay an existing building society loan and money used to repay borrowing which had originated as an overdraft.

The District Judge held that the lender had no contractual or statutory obligation to split the advance or operate the mortgage account on a MIRAS basis. His Honour Judge Russell-Vick QC dismissed the defendant’s appeal. The Court of Appeal considered whether the lender was nevertheless required to credit MIRAS relief from the inception of the loan.

Appeal dismissed unanimously. Chadwick LJ gave the judgment, with Waller LJ and the Master of the Rolls agreeing.

1. The statutory scheme distinguished ordinary relief for eligible interest from MIRAS relief at source. Under section 26 of the Finance Act 1982, relevant loan interest had to satisfy the conditions in Schedule 7. Those conditions included the requirement that the interest fall within paragraph 1 of Schedule 9 to the Finance Act 1972 and that, apart from the qualifying maximum restriction, the whole interest would have been eligible for relief.
2. Interest on overdraft borrowing was excluded by section 75(1A) of the Finance Act 1972. A loan used partly to repay a qualifying housing loan and partly to replace non-qualifying overdraft borrowing therefore did not satisfy the statutory requirement that the loan be used wholly for a qualifying purpose.
3. The expression limited loan had different meanings in the two statutory schemes. Under paragraph 5 of the Schedule to the Finance Act 1974, it concerned a qualifying-purpose loan affected by the qualifying maximum. Under paragraph 5 of Schedule 7 to the Finance Act 1982, it had the narrower meaning of such a loan where only part of the interest was eligible because of that maximum. The 1985 amendment did not bring mixed-purpose loans within MIRAS.
4. For a specified loan, paragraph 7(1) of Schedule 7 required either borrower self-certification in the prescribed form or a notice from the Inland Revenue. The mixed £45,000 remortgage could not properly be self-certified as a single MIRAS loan. The lender was entitled, and indeed required, to await Inland Revenue approval. The defendant had been invited to apply using form MIRAS 3.
5. The fact that the lender could have structured the borrowing as separate qualifying and non-qualifying loans did not create a contractual or statutory duty to do so. In the events which occurred, the lender had no obligation to treat the interest as paid under deduction of tax or to adjust the mortgage account from inception. Relief outside MIRAS remained potentially available through the borrower’s tax return or PAYE coding.

The appeal was dismissed. No order for costs was made, and the recorded order provided for the respondents’ costs to be added to the mortgage account. Leave to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division) — The appeal on the MIRAS issue was dismissed: [2001] EWCA Civ 1713.
2. Medway County Court — His Honour Judge Russell-Vick QC dismissed the defendant’s appeal from the District Judge’s decision on the MIRAS issue and costs in June 1999.
3. Medway County Court — District Judge Caddick held on 20 May 1998 that the lender had no contractual or statutory obligation to operate the mortgage account on a MIRAS basis from inception.