United Kingdom Special Commissioners of Income Tax Decisions

SPC00467

Capital Gains – Retirement Relief on the grounds of ill-health – incapable of engaging in work of a kind previously undertaken in the business and likely to remain permanently incapable – medical evidence did not support a finding of permanent incapacity – Appeal dismissed (Paragraph 3(1)(b), Schedule 6, Taxation of Chargeable Gains Act 1992).

SPECIAL COMMISSIONERS

ROSEMARY ANN PALMER Appellant

- and -

DAVID RICHARDSON

(HM INSPECTOR OF TAXES) Respondent

Special Commissioner: Michael Tildesley

Sitting in public in Birmingham on 4 March 2005

The Appellant did not appear nor was she represented

Peter Death HMIT, Central England Regional Appeals Unit, for the Respondent

© CROWN COPYRIGHT 2005


 


DECISION

Appeal

1. The Appellant appealed against an amendment to self assessment in the sum of £14,565.26 for year ended 5 April 2000.
2. The issue in dispute was whether the Appellant was entitled to claim retirement relief on the grounds of ill-health in respect of the chargeable gain arising from the disposal of her 50% share of the newsagent business previously run in partnership with her husband.

The Legislation

3. Section 163 of the Taxation of Chargeable Gains Act 1992 (hereinafter the 1992 Act) provides relief from capital gains tax for disposal of a business asset by an individual on retirement from a family business where the individual at the time of the disposal retired on ill health grounds and was below the age of 50.
4. Paragraph 3, Schedule 6 of the 1992 Act states that

(1) A person who has been concerned in the carrying on of a business shall be treated as having retired on ill-health grounds if,

(a) he has ceased to be engaged in and by reason of ill-health, is incapable of engaging in work of the kind which he previously undertook in connection with that business; and

(b) he is likely to remain permanently so incapable.

(2) In sub-paragraph (1) above, the reference to a person being concerned in the carrying of a business is a reference to his being so concerned personally or as a member of a partnership carrying on the business …..

5. Section 163 of the 1992 Act was repealed by Finance Act 1998 with effect in relation to disposals in the year 2003 –04 and subsequent years of assessment.

The Issues in Dispute

6. There were two issues in dispute:

(1) Whether the Appellant was likely to remain permanently incapable of engaging in work of the kind which she previously undertook in connection with the newsagent business.

(2) Whether the phrase "work of the kind" referred to work she actually did in the newsagent business or to the work she should have done to fulfil her partnership responsibilities.

The Facts

7. I heard evidence upon oath from Dr Peter John Hook M.B., Ch.B. D.Obst. R.C.O.G. 1959, Medical Advisor to the Board of Inland Revenue dealing specifically with applications for relief from Capital Gains Tax based on ill-health retirement. I also considered a bundle of documents, which contained detailed representations from the Appellant's firm of Accountants, Chancellers, and medical reports from her Doctor. On 11 October 2004 the Special Commissioner directed that each party shall be at liberty to adduce and rely on the evidence of one expert witness in accordance with Rule 12 of the Special Commissioners Regulations 1994.
8. The Appellant ran a newsagent business in partnership with her husband. The business was sold on 10 May 1999. The reason for the sale was that her husband, Mr Palmer, was suffering from lung cancer from which he has sadly died. The Appellant was below the age of 50 at the date she retired from the business.
9. On 22 March 2002 the Appellant submitted a claim for Capital Gains Tax relief on the grounds of ill health retirement in respect of a capital gain in the sum of £38,660 from the disposal of her 50% share in the newsagent business. In the application the Appellant described her duties as "hands on management including all tasks at all levels relating to a general retail business". The application was supported by a report from her medical practitioner, Dr David Lincoln MB BS DRCOG who found that the Appellant was suffering from depression because her husband had been diagnosed with cancer. The Appellant was treated with a course of anti-depressants. Dr Lincoln formed the medical opinion that the Appellant at the date of her retirement was incapable of carrying on the work of the kind she previously did because of her ill-health, but unlikely to remain permanently incapable of carrying on such work.
10. On 10 June 2002 the Appellant provided the Respondent with further details of the work she undertook in the business:

9am – 1pm (Mon – Fri)

Serving customers, replenishing shelves, cleaning, checking and receiving deliveries.

Occasional extra hours to cover staff absence (same duties as above).

I rarely carried out other duties leaving most of the responsibilities to my husband.

11. On 29 October 2002 Dr Lincoln wrote a letter to the Appellant's Accountants where he stated that the Appellant was still suffering from a grief reaction and had experienced previous episodes of depression. He was concerned that she would be significantly at risk of a further relapse if required to run a business as the sole responsible person. Dr Lincoln was of the view that there was a significant difference between taking sole responsibility and the previous shared responsibility that she had with her husband, Michael.
12. On 2 May 2003, the Appellant's Accountants, Chancellers, wrote to the Respondent, pointing out that the Appellant was a partner in the business which carried legal responsibilities and duties not dependent upon the day-to-day activities actually undertaken by the Appellant. Her Accountants considered that the Respondent should examine whether the Appellant was permanently incapable by reason of ill health of carrying out the responsibilities of a partner within a retail trading environment. The Accountants were concerned that the Respondent was restricting his enquiries to what she actually did in the business.
13. Dr Hook, Medical Adviser to the Board of Inland Revenue, produced to me his expert report dated 9 December 2003. He did not personally examine the Appellant but based his opinion on the following evidence:

(1) The report on form CG 85 signed by Dr Lincoln dated 23 March 2002.

(2) The Appellant's letter dated 10 June 2002.

(3) Dr Lincoln's letter dated 29 October 2002.

14. Dr Hook noted Dr Lincoln's diagnosis that the Appellant was suffering from depression and his opinion that she was unlikely to remain incapable of carrying on the type of work she did previously. Dr Hook also took into account Dr Lincoln's assessment that the Appellant might have a relapse of depression from the pressure of running a business as the sole responsible person. Dr Hook concluded that the Appellant's application for ill-health retirement relief was based on her stated duties as an assistant to her husband on a part time basis with no specific duties as a partner. Dr Hook was, therefore, of the opinion that the Appellant did not meet the legal requirements for retirement relief, in particular the requirement of permanent incapacity.
15. Dr Hook was requested by me to consider the circumstances set out in the Appellant's Accountants' letter of 2 May 2003 and give his opinion about whether the Appellant would be permanently incapable of performing the duties of a partner in the type of business run by herself and her husband. Dr Hook expressed his opinion that the Appellant would be able to take on the role of a partner as envisaged in the 2 May 2003 letter at sometime in the future.

My Findings on the Disputed Issues

16. Dr Hook and Dr Lincoln were both of the opinion that the Appellant was unlikely to remain permanently incapable of engaging in work of the kind which she previously undertook in connection with the newsagent business. Dr Lincoln in his subsequent letter of 29 October 2002 was concerned that the Appellant would be at significant risk of a further relapse of depression if she took on the responsibilities of a sole trader. However, in this letter Dr Lincoln did not express the view that the Appellant was permanently incapable of carrying out the kind of work previously undertaken by her.
17. Mr Death on behalf of the Respondent sought to restrict the definition of "work of the kind" to the duties actually performed by the Appellant as detailed in her letter of 10 June 2002. Her Accountants, on the other hand, contended that "work of the kind" embraced also the Appellant's legal and managerial responsibilities in her capacity of partner in the newsagent business. This dispute, however, was rendered academic by Dr Hook's conclusion that the Appellant would have been able to perform the duties of a partner at sometime in the future.
18. I am, therefore, satisfied on the medical evidence before me that the Appellant was unlikely to remain permanently incapable of engaging in work of the kind which she previously undertook in connection with the newsagent business. My finding on the evidence applies equally to the restricted and extended definition of "work of the kind" used by the Respondent and the Appellant's Accountants respectively.
19. The Appellant has failed to satisfy me that she qualified for ill-health retirement relief from the capital gain arising from the disposal of her 50% share in the newsagent business on 10 May 1999. The legal requirement of Paragraph 3(1)(b), Schedule 6 of the 1992 Act regarding the likelihood of the Appellant remaining permanently incapable of engaging in work of the kind has not been proved on the balance of probabilities. I, therefore, dismiss the Appeal. There will be no order for costs.

Determination

20. I uphold the amendment to self assessment in the sum of £14,565.26 for year ended 5 April 2000.
21. The Appellant may apply to review and set aside this decision provided she makes application to the Office of the Special Commissioners within 14 days from the date of the decision setting out the reasons for failing to appear at the hearing

Preliminary Matter

22. I decided to hear the Appeal in the absence of the Appellant pursuant to rule 16 of the Special Commissioners Regulations 1994 because:

(1) The Appellant was aware of the hearing date, of which her representative had been duly notified.

(2) The Appellant did not put forward a good and sufficient reason to postpone the hearing.

(3) A hearing of the Appeal had been previously postponed at the Appellant's request on the grounds of ill-health.

(4) The hearing date of 5 March 2005 was fixed in accordance with the medical report produced on the Appellant's behalf at the November hearing. The report stated that she should be fit to attend after eight weeks from the November date.

(5) The Appellant's case was clearly set out in the bundle of documents supplied to me at the hearing.

MICHAEL TILDESLEY

CHAIRMAN

RELEASE DATE:22 March 2005

SC 3030/2004