Lonsdale v HM Inspector of Taxes

Under the transitional regime for retirement annuity contracts and personal pension schemes, unused relief carried forward from earlier years forms part of the individual’s unused relief for the current year. Section 655(1)(b) of the Income and Corporation Taxes Act 1988 therefore requires that aggregate relief to be reduced by personal pension contributions paid in the current year. The legislation does not require separate relief pots to be maintained. A less favourable or apparently unfair fiscal result cannot justify departing from the natural and ordinary meaning of the legislation. Perceived unfairness is a matter for legislators, not judges.

The taxpayer made retirement annuity payments under contracts entered into before 1 July 1988 and contributions to a personal pension scheme. She elected to carry back payments made in 1999/2000 to 1998/1999 and claimed relief for the combined amount.

The Inspector of Taxes disallowed £1,490. The General Commissioners dismissed her appeal, and Lewison J dismissed her appeal on the construction issue. Permission to appeal to the Court of Appeal was limited to whether section 655(1) included carried-forward unused relief from earlier years when calculating the relief available in the current year.

1. Appeal dismissed. The Court of Appeal agreed with Lewison J that the Revenue’s construction of section 655(1) of the Income and Corporation Taxes Act 1988 was correct and that the General Commissioners had made no error of law.
2. The natural and ordinary meaning of “the individual’s unused relief for any year” in section 655(1)(b) includes unused retirement annuity relief carried forward from previous years together with unused relief arising in the current year. That relief is reduced by personal pension payments made in the current year. The balance is carried forward to the next year, when the calculation is repeated.
3. Section 625(2) supports this construction. It requires relief taken into account for one year to be deducted from the relief available for subsequent years, with earlier-derived relief exhausted before later-derived relief. The scheme therefore operates through an aggregate carry-forward mechanism rather than separately maintained relief pots.
4. The Court recognised that the Revenue’s construction produced a less beneficial fiscal result and might appear unfair. That consequence could not justify departing from the statutory language. The purpose and scheme of the legislation supported the Revenue’s construction, while the taxpayer’s approach did not reflect its natural and ordinary meaning.
5. The agreement issue under section 54 of the Taxes Management Act 1970 was outside the appeal because permission to appeal on that issue had been refused.

Lady Justice Arden and Mr Justice Munby agreed with Lord Justice Mummery.

1. Court of Appeal (Civil Division) — appeal dismissed on 17 June 2005, upholding Lewison J’s decision on the construction issue.
2. Chancery Division — Lewison J dismissed the taxpayer’s appeal from the General Commissioners by order dated 23 July 2004 and summarily assessed costs at £5,000.
3. General Commissioners for the London District of Cavendish — appeal dismissed on 18 February 2003 and the Inspector’s amendment to the taxpayer’s claim was confirmed.