Robson v HM Inspector of Taxes

For relief under section 253(1)(a) of the Taxation of Chargeable Gains Act 1992, a refinancing loan takes the character of the earlier borrowing it replaces. Rescheduling cannot convert a non-qualifying debt into a qualifying loan, although refinancing qualifying borrowing does not itself defeat relief. Whether the original borrowing was used wholly for trade purposes is a question of fact for the Commissioners. Their finding stands unless they misdirected themselves in law, lacked an evidential basis, or reached an effectively perverse conclusion. The court left undecided whether wholly concerns only quantum or also purpose.

Mr David Robson guaranteed a bank loan made to his company which refinanced an almost equivalent overdraft. After making payments under the guarantee, he claimed allowable-loss relief against capital gains tax under section 253(4) of the Taxation of Chargeable Gains Act 1992. The General Commissioners found that the company had not shown that the original borrowing was used wholly for its trade. Patten J dismissed the appeal. The Court of Appeal considered whether the statutory inquiry concerned the refinancing loan or the original borrowing, and whether the Commissioners’ factual conclusion was open to them.

1. Appeal dismissed. Patten J reached the correct conclusion for the correct reasons.
2. For section 253(1)(a) of the Taxation of Chargeable Gains Act 1992, where new borrowing is used to repay or reschedule existing indebtedness, the relevant purpose is the purpose for which the original borrowing was incurred. The new loan stands in place of the existing indebtedness. Refinancing cannot convert a non-qualifying loan into a qualifying one, while refinancing borrowing that already qualified does not itself defeat relief.
3. The argument that the new loan was used for the company’s trade because it paid off the overdraft was rejected. The company already owed the money. The material change was the basis of repayment and interest, not the incurring of a fresh trading liability.
4. The court did not decide whether wholly refers only to the quantum of expenditure or also requires an exclusive purpose. It assumed in the taxpayer’s favour that relief could in principle be available if all or some of the original monies had been used wholly for trade purposes.
5. Whether the money was used wholly for the company’s trade was ultimately a question of fact for the Commissioners. Applying the approach in Edwards v Bairstow [1956] AC 14, appellate intervention required legal misdirection, absence of evidence, or an effectively perverse conclusion. The Commissioners were entitled to rely on the lack of documentation, confusion between the company’s and Mr Robson’s affairs, and inconsistent explanations. Their finding that none of the money spent on Queen Street furthered the company’s trade was open to them and defeated the claim.
6. Although the Commissioners could in principle have found that only part of the money qualified, the appeal had proceeded on an all-or-nothing basis and their actual finding was that no relevant money had been used for the company’s trade.

• Court of Appeal (Civil Division): On 18 May 2005, dismissed the appeal: [2005] EWCA Civ 585.
• High Court, Chancery Division (Revenue): Patten J dismissed the appeal from the General Commissioners on 8 July 2004. No citation for that decision is stated in the judgment.
• General Commissioners for the Division of Scarborough: On 1 May 2002, dismissed Mr Robson’s appeal against the estimated capital gains tax assessment.