Lonsdale v HM Inspector of Taxes

Unused relief under Income and Corporation Taxes Act 1988 forms an aggregate available pot for later years, subject to statutory ordering rules. Where retirement annuity premiums and personal pension contributions coexist, the transitional provisions reduce the relief potentially available for retirement annuity premiums by current-year personal pension contributions, including accrued unused relief available for that year. A prior agreement concerning carry-forward relief for one year does not bind the Revenue for a later year unless the statutory machinery determines liability extending to that later year. Reopening the issue was not an abuse of power.

This was an appeal by way of case stated from the General Commissioners for Income Tax for the division of Cavendish in London. The appellant, a practising barrister, disputed the Revenue’s calculation of relief carried forward from retirement annuity premiums where she had also made personal pension contributions.

The case stated raised two questions: whether unused relief from earlier years was included when applying the transitional reduction provisions, and whether correspondence concerning the 1994/95 assessment created a binding agreement under section 54 of the Taxes Management Act 1970 for a later year.

The appeal was dismissed on both questions.

1. Carry-forward relief. Sections 619 and 625 of the Income and Corporation Taxes Act 1988 operate together. Section 619 is the relieving provision; section 625 extends its operation to qualifying premiums paid in later years where unused relief exists. Section 625(2) requires relief to be given for an earlier year before a later year, requires relief used in one year to be deducted from that available in subsequent years, and requires unused relief derived from an earlier year to be exhausted before relief derived from a later year.
2. The reference in section 655(1)(b) to unused relief for a year concerns the amount that could have been claimed under section 619 for that year. That amount includes accrued unused relief available at the time, applied in accordance with section 625(2). Accordingly, personal pension contributions paid in the current year reduce the aggregate relief potentially available for retirement annuity premiums in that year.
3. The equivalent personal pension carry-forward mechanism in section 642 has the same essential features, although the applicable percentage limits differ.
4. Section 54 agreement. The Commissioners were entitled to find that no binding agreement existed because there was no evidence that the appellant had given notice of appeal against the 1994/95 assessment. In any event, an agreement about carry-forward relief relevant to one year would bind the Revenue for a later year only if the statutory machinery permitted determination of an amount due in that future year. The amount agreed for 1994/95 was merely one step in determining liability for that year and could be reopened for a subsequent assessment.
5. The Revenue’s reconsideration of the issue was not an abuse of power. Its primary duty was to collect tax in accordance with the law.

The appeal was brought by way of case stated from a decision of the General Commissioners for Income Tax for the division of Cavendish in London, given on 18 February 2003. The High Court dismissed the appeal on both questions.