The unanimous House of Lords ruling in the Smith v Schofield case will come as something of a shock to those uninitiated in the ways of the law - following, as it did, a unanimous decision the other way a year ago in the Court of Appeal.
David Collison of Peters, Elsworthy & Moore, the accountants who represented Rosemary Schofield, believes that the final decision was about semantics and had little to do with tax. 'The two courts are picking up words in different bits of statutes and choosing which word is the more important word to look at. It really has become a complete linguistic exercise.'
Although thousands of taxpayers will be affected by the judgment, Mrs Schofield's case could hardly be simpler. An elderly widow in Cambridge, Mrs Shofield inherited an antique French mirror and a Chinese cabinet from her father in 1952 - 13 years before capital gains tax was introduced. She sold them in 1987. The gain that she realised was therefore subject to CGT for only 22 out of the 35 years in which she had owned the antiques.
But the way the Revenue calculated the gain produced a higher CGT liability than when her accountant, Mr Collison, computed it. The Revenue insisted that indexation for inflation should be deducted from the gain before the gain was time-apportioned across the pre- and post-1965 periods. Mr Collison argued that the procedures should be in the reverse order because she would lose part of her indexation relief under the Revenue method.
The difference between them amounted to pounds 266.70.
The case was run as a test case and backed by a consortium of accountancy firms and insurance companies. The Special Commissioner and the Court of Appeal found for Mrs Schofield. The High Court and the House of Lords found for the Revenue.
The Lords decision turns on their interpretation of the word 'gain' in the Capital Gains Tax Act 1979. However, the Lords said they reached their decision 'with regret'. Lord Jauncey of Tullichettle said: 'I reach this decision with regret . . . In the present case the effective value of the indexation allowance will be reduced by more than one third . . . I should be surprised if Parliament had intended such a result.'
Since the decision predominantly affects assets bought before 1965 and sold before March 1988, Mr Collison expects very few new cases to arise. Despite the Law Lords' comments he has no hope of a change in the law. He does hope that the creation of law becomes less asinine in the future: 'It must mean that the system we have for enacting tax legislation needs to be reformed. We need to look at what people will have to do in practice. We should not rush it through in late night sittings in the gap between the Budget and the summer recess.'
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