First-tier Tribunal (Tax)

[2009] UKFTT 162 (TC)

Rockliff v Her Majesty's Revenue & Customs [2009] UKFTT 162 (TC) (25 June 2009)
INCOME TAX/CORPORATION TAX
Pension scheme

TC00124

Appeal number SC/3094/2008

Income tax – pension payable to husband – claim that half of pension should be assessed on wife – Income & Corporation Taxes Act 1988 sections 1 & 19, Schedule E paragraph 2 – Income Tax (Earnings & Pensions) Act 2003 sections 569, 571 & 572 – Matrimonial Causes Act 1973 sections 21A & 24B - Human Rights Act 1998 sections 3, 4 & 6 – European Convention on Human Rights Article 14& Protocol 1 Article 1 – Police Pensions Regulations 1987 – appeals dismissed

FIRST-TIER TRIBUNAL

INCOME TAX

TREVOR ROCKLIFF Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Malachy Cornwell-Kelly

Sitting in public in London on 2 December 2008, and 5 March and 12th June 2009

The taxpayer in person

Mr Colin Williams of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

Preliminary remarks

1. As the dates of the first two hearings indicate, this appeal came before me as a special commissioner, but the decision comes after 1 April 2009 and is therefore a decision of the First-Tier tribunal. The result, so far as the taxpayer is concerned, is in substance the same though his prospect of appeal - should he seek it - is now to the Upper Tribunal rather to the High Court.
2. The case concerns the taxpayer's contention that the taxation of his police pension as his sole income, and not as the joint income of him and his wife, contravenes articles 14, 17 and 18 of the European Convention on Human Rights and Article 1 of Protocol 1 to the Convention, by discriminating against him as a married man, or against the institution of marriage. The principal argument for this proposition is that the tax position of the taxpayer and the person who is his wife would be more favourable if they had been divorced and a pension splitting order had been made.
3. Unless (which it will be seen is not the case here) it is possible to 'read down' a provision of national legislation incompatible with the Convention in order to make it compliant with it, pursuant to sections 3 and 6 of the Human Rights Act 1998, the First-Tier Tribunal has no jurisdiction under section 4 to make a declaration of incompatibility. I explained this to the taxpayer at the hearings.
4. The original appeal, focussed as it was on the Human Rights Convention, could thus be disposed of on the simple ground that it raised no issue within the tribunal's jurisdiction on which it could succeed. Nevertheless, as will appear below, it has taken excessively long to bring this matter to a hearing; the taxpayer has clearly put a great deal of effort into the preparation of his case, submitting much background material and citing more than thirty decisions of the European Court of Human Rights and other authorities; and the issue raised is one which it is in the public interest to be seen to have been addressed, at least at first instance.
5. It is therefore appropriate that the taxpayer's arguments on the Convention should be considered in outline and, if the matter is taken further, there may be some advantage in the issues having been a little clarified before that stage.

The years under appeal

6. The original appeal was dated 15^th July 2001 and arose from a dispute over the issue I have outlined. The taxpayer's return for 1998/99 showed a liability to income tax for half only of his police pension of some £6,000; the return was the subject of an enquiry by HMRC who, on 5^th July 2001, issued a Closure Notice amending the return to show the whole of the pension as liable to income tax and an amount of £608.39 as due. The appeal as it came before the tribunal was formally against that assessment.
7. At the first hearing on 2 December 2008 HMRC took the point, for the first time, that the events material to this appeal had all occurred before the Human Rights Act 1998 had come into force, and that no point on the Convention could therefore be argued before the tribunal, no later years' assessments being formally under appeal.
8. As I explained to the taxpayer, it is not for the tribunal to examine the administrative delays which have led to this matter taking so long to come to a hearing. Suffice it to say that the taxpayer in fact complained to the Parliamentary Commissioner for Administration, through Mr Jon Crudas MP, on 27 June 2002 about the then Inland Revenue's delay in fixing a date for the hearing of his appeal against the assessment I have referred to for 1998/99. The Parliamentary Commissioner replied to that complaint on 10 July 2002 to the effect that there was no basis for an investigation of it because, according to the Revenue's response, "their records showed that there was no appeal outstanding for Mr Rockliff".
9. Mr Williams, appearing for HMRC, very frankly said that he could not defend that statement, which had plainly been wrong. In view of that, and in view of the fact that matters had still not progressed thereafter at anything like a reasonable speed, Mr Williams undertook that the years 2006/07 and 2007/08 would be re-opened so that the Human Rights issue could formally be argued now.
10. Accordingly, HMRC opened enquiries into those two years and issued amendments to the returns made as follows: for 2006/07 the return showing 50% of the pension received was amended to 100% and the further tax due assessed at £1,738.46; for 2007/08 the same amendment was made and the further tax due assessed at £2,249.70. In accounting terms, all tax due has already been paid and these assessments are therefore for the record. They were the subject of appeals dated 29 December 2008, and a notice joining them to the original appeal was issued on 19 January 2009.

The legislation

11. Section 19(1), paragraph 2, of the Income and Corporation Taxes Act 1988 provides that "Tax under this Schedule [E] shall be charged in respect of every annuity, pension or stipend payable by the Crown or out of the public revenue of the United Kingdom". It is not in dispute that the taxpayer's pension is in principle chargeable under this provision.
12. That provision lies in the context of the basic charge to tax in section 1 of the same Act which, so far as material, provides:

1(1) Income tax shall be charged in accordance with the provisions of the Income Tax Acts in respect of all property, profits or gains respectively described or comprised in the Schedules A, D, E and F set out in sections 15 to 20 or which in accordance with the Income Tax Acts are to be brought into charge to tax under any of those Schedules or otherwise.

(2) Where any Act enacts that income tax shall be charged for any year, income tax shall be charged for that year –

(aa) in respect of so much of an individual's total income as does not exceed [the first rate band applicable for that year] at such rate as Parliament may determine to be the starting rate for that year;

13. The section as a whole makes it clear that the income tax is charged on the individual whose income is in question.
14. The two further assessments for 2006/07 and 2007/08 fall under the provisions of the Income Tax (Earnings and Pensions) Act 2003 which, again so far as material, provide:

569(1) This section applies to any pension paid by or on behalf of a person who is in the United Kingdom.

571 If section 569 applies, the taxable pension income for a tax year is the full amount of the pension accruing in that year irrespective of when any amount is actually paid.

572 If section 569 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

15. The Police Pensions Regulations 1987 govern the taxpayer's pension entitlement. Regulation B1 provides:

(5) Subject to the provisions of these Regulations, a regular policeman to whom this Regulation applies shall be entitled to an ordinary pension of an amount calculated in accordance with Part I of Schedule B, subject however to Parts VII and VIII of that Schedule; …

16. Regulation B9 gives the person entitled to a pension the right to allocate part of it to another, referred to as "the beneficiary". Thus:

(2) A regular policeman who is entitled to reckon not less than 25 years pensionable service may, subject to and in accordance with this Regulation, allocate a portion of any ordinary or ill-health pension to which he is or may become entitled …

(7) Where a person retires or has retired in circumstances entitling him to a pension to which a notice of allocation given by him relates and that notice becomes effective –

(a) that pension shall be reduced in accordance with the notice (notwithstanding the previous death of the beneficiary) as from the date on which the pension is payable or on which the notice becomes effective, whichever is the later, and

(b) the police authority shall, as from the person's death, pay the beneficiary specified in the notice, if that person survives him a pension of such amount as is the actuarial equivalent of the surrendered portion of the pension.

17. Regulation B10 limits the amount which can be so allocated to a beneficiary as follows:

The portion of a pension which a regular policeman may surrender under either Regulation B7 [commutation] or Regulation B9 shall be limited as hereinafter provided, namely, it shall not be –

(a) in the case of any pension, such that the pension becomes payable at a rate less than two-thirds of the rate at which it would have been payable but for the provisions of the said Regulations and parts VII and VIII of Schedule B;

18. A number of provisions of the European Convention on Human Rights are cited in support of the taxpayer's argument, principally articles 14, 17 and 18 and Article 1 of Protocol 1:

Article 14 Prohibition of discrimination

14 The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.

Article 17 Prohibition of abuse of rights

17 Nothing in this Convention may be interpreted as implying for any state, group or person any right to engage in any activity or perform any act aimed at the destruction of any of the rights or freedoms set forth herein or at their limitation to a greater extent than is provided for in the Convention.

Article 18 Limitation on use of restrictions on rights

18 The restrictions permitted under this Convention to the said rights and freedoms shall not be applied for any purpose other than those for which they have been prescribed.

Protocol 1

1 Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

19. These provisions are given direct effect in the United Kingdom by the Human Rights Act 1998, and of particular relevance in this appeal are sections 3, 4 and 6:

3(1) So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the Convention rights.

(2) This section –

(a) applies to primary legislation and subordinate legislation whenever enacted;

(b) does not affect the validity, continuing operation or enforcement of any incompatible primary legislation; and

(c) does not affect the validity, continuing operation or enforcement of any incompatible subordinate legislation if (disregarding any possibility of revocation) primary legislation prevents removal of the incompatibility.

6(1) It is unlawful for a public authority to act in a way which is incompatible with a Convention right.

(2) Subsection (1) does not apply to an act if –

(a) as the result of one or more provisions of primary legislation, the authority could not have acted differently; or

(b) in the case of one or more provisions of, or made under, primary legislation which cannot be read or given effect in a way which is compatible with the Convention rights, the authority was acting so as to give effect to or enforce those provisions.

(3) In this section "public authority" includes –

(a) a court or tribunal, and

(b) any person certain of whose functions are functions of a public nature,

but does not include either House of Parliament or a person exercising functions in connection with proceedings in Parliament.

(4) In subsection (3), "Parliament" does not include the House of Lords in its judicial capacity.

(5) In relation to a particular act, a person is not a public authority by virtue only of subsection (3)(b) if the nature of the act is private.

(6) "An act" includes a failure to act but does not include a failure to –

(a) introduce in, or lay before, Parliament a proposal for legislation; or

(b) make any primary legislation or remedial order.

20. Section 4 defines the courts having jurisdiction to make a declaration of incompatibility with the Convention. The First-Tier tribunal is not within those definitions.
21. Lastly, the taxpayer referred by way of illustration to sections 21A and 24B of the Matrimonial Causes Act 1973, as inserted by section 19 of the Welfare Reform and Pensions Act 1999. These sections provide:

21A Pension sharing orders

(1) For the purposes of this Act, a pension sharing order is an order which –

(a) provides that one party's –

(i) shareable rights under a specified pension arrangement, or

(ii) shareable state scheme rights,

be subject to pension sharing for the benefit of the other party, and

(b) specifies the percentage to be transferred.

(2) In subsection (1) above –

(a) the reference to shareable rights under a pension arrangement is to rights in relation to which pension sharing is available under Chapter I of Part IV of the Welfare Reform and Pensions Act 1999, or under corresponding Northern Ireland legislation,

(b) the reference to shareable state scheme rights is to rights in relation to which pension sharing is available under Chapter II of part IV of the Welfare Reform and Pensions Act 1999, or corresponding Northern Ireland legislation, and

(c) "party" means party to a marriage.

24B Pension sharing orders in connection with divorce proceedings etc

(1) On granting a decree of divorce or a decree of nullity of marriage or at any time thereafter (whether before or after the decree is made absolute), the court may, on an application made under this section, make one or more pension sharing orders in relation to the marriage.

(2) A pension sharing order under this section is not to take effect unless the decree on or after which it is made has been made absolute.

(3) A pension sharing order under this section may not be made in relation to a pension arrangement which –

(a) is the subject of a pension sharing order in relation to the marriage, or

(b) has been the subject of pension sharing between the parties to the marriage.

(4) A pension sharing order under this section may not be made in relation to shareable state scheme rights if –

(a) such rights are the subject of a pension sharing order in relation to the marriage, or

(b) such rights have been the subject of a pension sharing order between the parties to the marriage.

(5) A pension sharing order under this section may not be made in relation to the rights of a person under a pension arrangement if there is in force a requirement imposed by virtue of section 25B or 25C below which relates to benefits or future benefits to which he is entitled under the pension arrangement.

22. The taxpayer also submitted, at all three hearings, a great deal of non-statutory material in support of his argument, ranging from Magna Carta to statements by ministers in Parliament and contemporary articles, speeches and radio interviews. It is interesting and informative, and doubtless material to the policy decisions of the legislature, but it does not constitute legal authority which the tribunal is entitled to take into account or is bound by, and I will not refer to it further. I repeatedly explained this to the taxpayer, who replied that he wished this material to be "on the record"; it is accordingly retained in the tribunal's files.

Factual background

23. There is no dispute about the factual background. The taxpayer retired from the police service at 49 years of age in October 1998, and thence received a police retirement pension in accordance with the Police Pensions Regulations referred to above. No application for an allocation under the regulations was made, and the whole of the pension is payable to the taxpayer and, under section 9 of the Police Pensions Act 1976, no part of the pension may be assigned or charged. The pension is paid into the joint bank account which the taxpayer maintains with his wife; he did, however, pay additional contributions of some 7% to the pension fund in order to attract a half rate widow's pension should he predecease his wife. The taxpayer's wife is not a member of the pension scheme.
24. The taxpayer undertook correspondence about his complaint with his Member of Parliament, Mr Jon Crudas MP, in 2001 who elicited a reply from a Treasury Minister on 30 November 2001 explaining that, under the independent taxation of married persons introduced in 1990/91, each individual is treated equally and has his or her personal allowance and set of rate bands; the objective said the Minister had been to remove the tax penalties that existed on marriage previously.

The Human Rights issues

25. The gravamen of the taxpayer's case is that if his pension income were to be apportioned as to 50% to his wife, she would be able to set her allowances and rate bands against that half and the total tax bill between them would be lower; since his pension is actually paid into a joint account and shared, such apportionment should, he says, be allowed.
26. That it is not allowed is, according to this argument, effectively a discrimination against marriage since such a result could obtain if the couple were to divorce and a pension sharing order were to be made by the court; in that event, the taxpayer's (by then) former wife would be able to take advantage of her allowances and lower rate bands, and the total tax bill for the divorced 'couple' would be lower.
27. On this basis, it is said, divorcees are treated more favourably for tax purposes than are married persons, and therefore there is discrimination against the taxpayer on account of his status as a married person, contrary to Article 14 of the Convention. The taxpayer points out that taking advantage of the provisions as to allocation of part of a police pension, as provided for in the Police Pensions Regulations cited above, would not significantly alter this analysis. The effect of the present tax legislation is also, he says, at variance with several strands of social policy adopted by the legislature in recent years to eliminate various types of discrimination.
28. For their part, HMRC reply that the legislation is now blind to the status of taxpayers, treating married and unmarried alike, and that if there is some element of favouring the divorced state in certain circumstances, that is the consequence of the family legislation which has been referred to and is beyond the jurisdiction of the tribunal to examine. In any event, this very issue has already arisen before and has been clearly dealt with.
29. HMRC cite in support of this argument the decision of a special commissioner in Stubbs & Stubbs v HMRC (2007) SC00638. In that case, a married couple made essentially the same claim as that made in this case, that half of the husband's pension should be taxed as the wife's income and not as his. The husband's argument differed in so far as he had purported to 'transfer' half of his pension to his wife, but the pension scheme in question specifically prohibited assignment of the pension except to a former spouse. It seems therefore that whatever disposition of half of the pension there might have been would have taken effect as a gift, following receipt of the full pension by the husband.
30. Although the appeal was dismissed, it must be noted that the taxpayers did not appear and were not represented, and that the Human Rights issue as such was not argued at all. Stubbs & Stubbs is therefore of very limited assistance in this context, and does not obviate the need to address the Convention arguments. Before that is done, however, it is right to emphasise the existence of two factors which are not in doubt.
31. The first relates to the ownership of the pension in question. Typically, the right to a pension belongs to the person whose service in employment has earned it. Certainly, in the instant case, that is so and it has not been argued that the taxpayer's wife has any legal entitlement to her husband's pension rights while he is alive.
32. Thus, if any action were needed to compel payment of the pension, it could only be taken by the taxpayer. If the taxpayer so chose – which he emphasised he would in practice never contemplate – he would prima facie be entitled to keep the whole of what was paid to him and deny any of it to his wife; it is his property. In the case of a pension which is the subject of a pension sharing order on divorce, the ownership of the right to the pension is divided: if one former party to the marriage predeceases the other, that has no bearing on the survivor's entitlement. Where before there was one pension in one ownership, there are thenceforth two pensions in separate ownerships.
33. The second factor that must be taken in to account in this context is that the situation of two persons who have been divorced is materially different from that of two married persons. The extent of the difference will depend on the circumstances of each case, but it is clear that special provision has to be made with regard to matters which previously could be dealt with more easily, and in general more economically, such a housing accommodation, the education of children and the support of whoever carries the heavier burden of caring for them.
34. This difference between the married and the divorced state hardly needs to be emphasised, such is the extent and complexity of the legislation which has been found necessary to cater for divorce, and for its social and economic implications. In the words of Lord Nicholls of Birkenhead in White v White [2001 1 All ER 1, at 3] "Divorce creates many problems."
35. Nevertheless, the introduction in 1991 of the concept that the parties to a marriage should be taxed on their income independently, as though they were not married, may be apt, at first sight, to suggest that if no special recognition now attaches to the fact of marriage in relation to income tax, then none should be attached to the situation of a marriage having previously existed. On the face of it, therefore, there may be a case to answer in the terms of Article 14 of the Convention.
36. The argument would be that Article 1 of Protocol 1 entitles everyone "to the peaceful enjoyment of his possessions", of which the right to receive a pension, is an example. But that entitlement is subject to the "right of a state to enforce such laws as it deems necessary … to secure the payment of taxes or other contributions or penalties". Fastening on to those provisions, is Article 14, which prescribes that the rights and freedoms set forth in the Convention "shall be secured without discrimination on any ground such as sex, race, colour … or other status".
37. Is the better tax treatment of shared pensions in the hands of divorcees an example of the discrimination prohibited by Article 14 read with Article 1 of Protocol 1 of the Convention? To address that issue it is necessary to see the interpretation of these provisions which has been given by the European Court of Human Rights ("the Court") in answer to the following questions:

1. Does Article 1 of Protocol 1 apply to taxation?

2. What is discrimination contrary to Article 14?

3. How can any discrimination be objectively justified?

38. The case law of the Court is relation to these matters is in fact well established over a series of judgments, and it is necessary only to make reference to typical decisions in each instance. For this purpose, it is convenient to select four recent decisions of the Court in which the relevant principles are reaffirmed: Willis v United Kingdom (2002) 35 EHRR 21; P.M. v United Kingdom (2006) 42 EHRR 45; Burden v United Kingdom (2008) 47 EHRR 38; Zeman v Austria [2006] ECHR no. 23960/02.
39. In Willis the applicant complained that social security legislation discriminated against him on the ground of his sex, namely that upon his wife's death he was denied benefits equivalent to those which a woman in comparable circumstances would have received; the Court held that there had been a violation of Article 14, taken with Article 1 of Protocol 1, in relation to certain of the benefits. P.M. v United Kingdom concerned the refusal to an unmarried father of tax deductions for maintenance payments to the mother of his daughter, when such payments by a previously married but divorced father would have qualified; the Court held that there had been a violation of Article 14, taken with Article 1 of Protocol 1.
40. Burden v United Kingdom was the case of the two sisters who had lived together all their lives, and the survivor of whom was not eligible for the exemption from inheritance tax which would have been available if they had been married persons or had been in a civil partnership. The Court held that in this case there had been no violation of Article 14, taken with Article 1 of Protocol 1, since the difference of treatment had a reasonable and objective justification, namely that the relationship of consanguinity was different in kind from that constituted by marriage or civil partnership.
41. In the fourth case, Zeman v Austria, the applicant complained that he was denied a survivor's pension on the death of his wife of an amount equivalent to that which his wife would have received had he predeceased her. In this case, the Court again held that there had been a violation of Article 14, taken with Article 1 of Protocol 1.

Does Article 1 of Protocol 1 apply to taxation?

42. The position of the Court on this issue is quite clear: that taxation is in principle an interference with the right to the peaceful enjoyment of possessions, and that the exception from this principle allowed to the states with regard to taxation must be exercised having regard to the principle of proportionality.
43. Thus in Burden the Court observed at [59]:

Taxation is in principle an interference with the right guaranteed by the first paragraph of Article 1 of Protocol No 1, since it deprives the person concerned of a possession, namely the amount of money which must be paid. While the interference is generally justified under the second paragraph of this Article, which expressly provides for an exception as regards the payment of taxes or other contributions, the issue is nonetheless within the Court's control, since the correct application of Article 1 of Protocol No 1 is subject to its supervision.

44. Likewise, in P.M. v United Kingdom it was accepted at [24], without argument, that the United Kingdom tax relief known as qualifying maintenance payment allowance fell within the ambit of Article 1 of Protocol 1.

What is discrimination contrary to Article 14?

45. In this regard, the Court has made it clear that the function of Article 14 is ancillary to the fundamental rights and freedoms guaranteed by the Convention, so that it operates as a check on the manner in which those rights and freedoms are given effect. In Willis, for example, the Court stated, at [29]:

The Court recalls that, according to its established case law, Article 14 of the Convention complements the other substantive provisions of the Convention and the Protocols. It has no independent existence since it has effect solely in relation to "the enjoyment of the rights and freedoms" safeguarded by those provisions. Although the application of Article 14 does not presuppose a breach of those provisions – and to this extent it is autonomous – there can be no room for its application unless the facts at issue fall within one or more of them.^[1]

46. Addressing the question of what amounted to discrimination within the meaning of Article 14, the Court continued at [39]:

According to the Court's case law, a difference of treatment is discriminatory for the purposes of Article 14 if it "has no objective and reasonable justification", that is if it does not pursue a "legitimate aim" or if there is not a "reasonable relationship of proportionality between the means employed and the aim sought to be realised". The Contracting States enjoy a certain margin of appreciation in assessing whether and to what extent differences in otherwise similar situations justify a different treatment.

47. Deciding what situations are analogous to what others may be difficult. In P.M. v United Kingdom for example, the applicant had complained, as has been seen, that his status as an unmarried father had been the pretext for refusing him tax relief on payments for the maintenance of his daughter which he would have enjoyed had he been previously married to the child's mother.
48. The Court's observations in P.M. on this were as follows, at [27 & 28]:

This is not a situation in which the applicant seeks to compare himself to a couple living in a subsisting marriage,^[2] but one where the married father has separated or divorced and is also living apart from the child of the family. … The Court recalls that it has in some cases found that differences in treatment on the basis of marital status has had objective and reasonable justification.^[3]

Nonetheless, the Court found on the facts of P.M. that such a justification for the different treatment did not exist and that there had been a violation of Article 14, taken with Article 1 of Protocol 1.

How can any discrimination be objectively justified?

49. As the Court has indicated, the states enjoy a "wide margin of appreciation" in giving effect to the rights guaranteed by the Convention. In Zeman, the Court, at [33], stated the matter in this way:

The scope of this margin will vary according to the circumstances, the subject matter and the background (see Petrovic v Austria)^[4]. As a general rule, very weighty reasons would have to be put forward before the Court could regard a difference in treatment based exclusively on the ground of sex as compatible with the Convention (see Van Raalte v Netherlands^[5] and Schuler-Zgraggen v Switzerland)^[6]. On the other hand, a wide margin is usually allowed to the state under the Convention when it comes to general measures of economic or social strategy (see for example James & Ors. v United Kingdom^[7] and National & Provincial Building Society & Ors. v United Kingdom).^[8]

Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is in the public interest on social or economic grounds, and the Court will generally respect the legislature's policy choice unless it is "manifestly without reasonable foundation" (ibid.).

Conclusions on Human Rights

50. It is clear from the case law that Article 1 of protocol 1 covers the taxpayer's situation. There is, in addition, some prima facie case that the income tax situation of a divorced partner is comparable with that of a partner to a marriage still subsisting; but to sustain a challenge, on the basis of Article 14, to the state's margin of discretion in regard to a difference of treatment would be a matter of considerable difficulty.
51. In the first place, there is a distinction in kind between the case of a married person who has no legal entitlement to a pension (the position of the taxpayer's wife here), and that of a divorced person in whom a pension entitlement has been vested by law, following a pension sharing order. That is an objective distinction, which could itself justify a difference of treatment.
52. Secondly, the scope of the tax relief available consequent upon divorce is clearly one of those instances contemplated by the Court, in its observations in Zeman cited above, in which the many and complex social and economic considerations relating to support for the parties and their children following family breakdown is pre-eminently a matter for the decision of the legislature.
53. I have not judged it useful to advert to the taxpayer's arguments on Articles 17 and 18 of the Convention which, in my view, have little if any relevance to his case. And, for the reasons explained above, and which he well understands, the taxpayer's challenge to the national legislation by reference to the European Convention on Human Rights can only be resolved if the matter proceeds to appeal.

Section 572 of the Income Tax (Earnings & Pensions) Act 2003

54. A footnote to the appeal is called for in relation to the wording of section 572 of the Income Tax (Earnings & Pensions) Act 2003. It will be seen that this section, unlike the legislation which preceded it, provides explicitly that the person liable to pay the tax on a chargeable pension "is the person receiving or entitled to the pension".
55. Although the 1988 Act, like its predecessors, contained no equivalently explicit provision, it was plain from the structure of the income tax Acts in general, and section 1 of the 1988 Act in particular, that the income tax was (unless there was a clear provision to the contrary) chargeable upon the person whose income was at issue, that is to say the person entitled to the income. On the face of it, section 572 expands the scope of this liability to any person merely receiving a pension.
56. Thus, for reasons which might range from tax planning to personal beneficence and include much else in between, A might choose to have his pension paid to B; circumstances might then occur in which recovery of the tax from A would be difficult or impossible, whereas recovery from B would be feasible. In spite of the likelihood that in very many cases tax will have been deducted at source, there could well be situations in which such a further recovery option would be valuable and, on the face of it, section 572 now makes that possible.
57. In so far as the present appeal is concerned, could the implications be significant? Since the taxpayer's pension is in law also received by his wife, by virtue of its being paid into their joint account, is the consequence of that that she becomes entitled to set against her liability to tax her own personal allowances and rate bands? At first blush, it seems unlikely that such a striking result can have been intended by parliament in the context of a consolidating statute, whose preamble states that it is:

An Act to restate, with minor changes, certain enactments relating to income tax on employment income, pension income and social security income; and for connected purposes.

58. An option for HMRC to proceed against the taxpayer's wife for recovery of the tax on his pension, or part of it, would in any event not necessarily assist him in the procedural sense, since the Crown would continue to be entitled to proceed against the taxpayer alone - in which case whatever entitlements his wife might now have would not come into play.
59. The taxpayer nonetheless points out that the wording "receiving or entitled" is used consistently in the 2003 Act: in sections 572, 576, 579, 582, 592, 597, 600, 608, 614, 618, 622, 632 & 636; and a slightly different formula is used in sections 603, 625 where the wording is that tax may recovered from the person "to whom or for whose benefit the payment is made". It is submitted that these expressions cannot be without new and extended meaning, and that they are apt to recognise in the fiscal context the policy of the social legislation to which reference has been made.
60. HMRC's position with regard to section 572, the one applicable in this case, was however categorical: there was no change in liability for tax effected by the 2003 Act. They pointed to section 1(2) of the Act, which states of the charges imposed by it:

(2) Those charges to tax have effect for the purposes of section 1(1) of ICTA [the 1988 Act] (the general charge to income tax).

61. This cross-reference it was submitted makes it clear that the charge to tax is intended to remain upon the person whose income give rise to it, as hitherto. At my invitation, Mr Williams took specific instructions on this point and stated formally and for the record:

The Commissioners do not see section 572 as changing the law, and they would not rely on it to recover tax on a pension from any person other than the person entitled to the pension.

Conclusion

62. In the circumstances, the conclusion must be that the wording used in section 572 of the Income Tax (Earnings & Pensions) Act 2003 does not assist the taxpayer's case. The appeals accordingly do not succeed, and there is no direction as to costs.

Malachy Cornwell-Kelly

TRIBUNAL JUDGE

RELEASE DATE: 25 June 2009

Note 1   See, among other authorities, Gaygusuz v Austria (1997) EHRR 364, para 36.    [Back]

Note 2   See for example Lindsay v United Kingdom Commission Decision no. 11089/84 on 11th November 1986 DR 49 p. 181, where married and unmarried couples, taxed differently, were not found to be in a comparable position.    [Back]

Note 3   See e.g. McMichael v United Kingdom (A/307-B) (1995) 20 EHRR 205 at [98] concerning legislation which did not grant automatic parental responsibility to unmarried fathers who inevitably varied in their commitment and interest in, or even knowledge of, their children.    [Back]

Note 4   (2001) 33 EHRR 14.    [Back]

Note 5   (1997) 24 EHRR 503.    [Back]

Note 6   (1996) 21 EHRR 404.    [Back]

Note 7   (1986) 8 EHRR 123.    [Back]

Note 8   (1998) 25 EHRR 127.    [Back]