OWEN vs ELLIOTT (INSPECTOR OF TAXES).

Fox L.J. This is an appeal by the taxpayer from a decision of Millett J.,

who dismissed an appeal from a decision of general commissioners holding that an assessment to capital gains tax for the year 1981-82 in the sum of some Pounds 20,000 in respect of the Gleneagles Hotel, Eastbourne, should be upheld. The case is concerned with the meaning of the words "let by him as residential accommodation" in section 80(1) of the Finance Act 1980.

The commissioners found the following facts. The Gleneagles Hotel consisted of two parts, namely, a main building and an annexe. The taxpayer, Mr. Owen, and his wife who had purchased the property jointly in 1976, carried on the business of a private hotel and boarding house on the premises, in that they received guests for payment. Mrs. Owen did the cooking and the washing for the guests. There were no separate facilities for cooking or washing clothes in the bedrooms. The main building consisted of ten bedrooms, a kitchen and a lounge. The annexe contained two bedrooms, a lounge and a kitchen and some ancillary facilities. The hotel had a table licence for the supply of alcoholic drinks in the building.

The hotel received two types of guests for reward : (1) those who came for short-term stays, that is to say, two weeks or less, during the summer season between Easter and the end of September-some guests in fact stayed for rather longer periods than two weeks-and (2) guests who came in the period from October to Easter, the low season. These guests were often from abroad and stayed, on an average, for three to four months. However, they could if they wished stay on into the summer season if they paid the summer rates. During the summer season the taxpayer and his family occupied the annexe; the main building was occupied by the guests. In the low season the Owens occupied the whole of the building, together with their guests, who were rarely more than one or two in number.

On March 24, 1982 the whole property was sold. It had been agreed between the taxpayer and the inspector that one-third of the gain arising on the sale of the hotel should be treated as exempt from capital gains tax under sections 101 and 102 of the Capital Gains Tax Act 1979. Those sections confer an exemption in respect of a gain accruing to an individual so far as attributable to the disposal of a dwelling house which was at any time during his period of occupation his only or main residence. Section 80 of the Finance Act 1980, with which this case is primarily concerned, introduced, however, a further relief. Section 80(1) provides :

"Where a gain to which section 101 of the Capital Gains Tax Act 1979 (disposals of private residences) applies accrues to any individual and the dwelling house in question or any part of it is or has at any time in his period of ownership been wholly or partly let by him as residential accommodation the part of the gain, if any, which, apart from this section would be a chargeable gain by reason of the letting, shall be such a gain only to the extent, if any, to which it exceeds the lesser of [two amounts]."

I need not read those out. The first, (a), relates to the part which is not a chargeable gain by virtue of the provisions of section 102 of the Act of 1979 and the second, (b), is the sum of Pounds 10,000, which has subsequently been increased to Pounds 20,000 though in fact in relation to the present case it is the sum of Pounds 10,000 which is applicable. The remainder of section 80(1) need not be read. The section applies to disposals after April 3, 1980.

Although the hotel was jointly owned, the assessment was made on the taxpayer alone as the husband. The commissioners held that the taking of boarders at the hotel during the Owens period of ownership did not constitute lettings as residential accommodation within section 80(1) and the relief given by that section was therefore refused. The issue is the meaning of the words in section 80(1), "let by him as residential accommodation."

On appeal from the commissioners by the taxpayer, Millett J. held that the words "residential accommodation" were capable of meaning, as the Crown submitted, accommodation let to persons making their home in the premises which were let, as opposed to paying guests staying there overnight or on holiday; and that it was also capable of meaning, as the taxpayer submitted, accommodation let to persons as paying guests in the manner in which the rooms were let by Mr. and Mrs. Owen in the hotel, as opposed to, say, trade or storage accommodation. The judges conclusion was that, although his mind had wavered during the course of the argument, taken in the context of section 101 of the Capital Gains Tax Act 1979, the Crowns interpretation was correct. Millett J. took the view that the question depended on the quality of the letting by the owner of the premises and that, looked at in those terms in the context of section 101, the proper construction was that the letting must be in effect for the purpose of a home for the person to whom the letting was made. In the circumstances the judge concluded :

"If the accommodation was let as residential accommodation to persons who by and large were likely to take advantage of it for that purpose, then it will qualify : if not, it will not. In order to obtain the relief the taxpayer must establish that the kind of letting in which he was engaged was a letting to people who would be likely to use it as their home. The relief would normally be available to the home owner who provides lodgings for university students or accommodation for hospital nurses, or who takes in lodgers from time to time, but not to someone who is simply carrying on an hotel or boarding house business."

On that basis, the judge considered that the commissioners were right and dismissed the appeal by the taxpayer. For completeness I should mention here that it is common ground that the word "let" in section 80(1) includes a licence. It is not limited to leases.

The first question is the meaning of "residential accommodation" in the expression "let by him as residential accommodation" in section 80(1). Does it include such lettings as were made by Mr. and Mrs. Owen in the hotel in this case ? Mr. Moses for the Crown accepted that as a matter of the ordinary use of the English language it does, read by itself. He said however that section 80(1) must be read in its context. It was designed, he said, to extend the relief afforded by sections 101 and 102 of the Capital Gains Tax Act 1979. Section 80 of the Act of 1980 only applies if the dwelling house falls within section 101 of the Act of 1979, which the hotel in the present case, it was agreed, does.

It was then said that the concept of a home is central to section 101 and is carried into section 80(1) of the Act of 1980, and that it is therefore consistent with the relief to extend it to taxpayers who have some surplus accommodation in their homes and which they are proposing to let to a person as his home. It was said, therefore, that in their proper context the words "residential accommodation" in section 80 do not extend to the lettings of the rooms in the hotel in the present case.

I accept that the words "residential accommodation" must be construed in their proper context and that that context includes section 101 of the Capital Gains Tax Act, 1979, but I see nothing in section 101 which displaces what is accepted to be the ordinary meaning of the words "residential accommodation."

Let it be accepted that section 101 is concerned with dwelling houses that can reasonably be called "homes." In section 101, it seems to me, the dwelling house acquires that status by language which bears no resemblance at all to that in section 80. The draftsman of section 101 achieves his purpose by referring to a dwelling house "which is, or has at any time during his period of ownership, been his only or main residence." It seems to me that those words, taken together, are what achieve the concept of a home in section 101 an there is nothing at all which resembles them in section 80(1) of the Finance Act 1980.

Mr. Moses said that the concept of a home is conveyed by the word "residence" alone. I do not feel able to accept that. A person may well have a residence or several residences which are not his home. The language of section 101 plainly, it may be said, indicates a home. In any event one must read the whole of the language of section 101. I see nothing corresponding to it in section 80(1). Section 101 nowhere uses the expression "residential accommodation" and I see nothing in its provisions to displace the admitted meaning of the words "residential accommodation" as a matter of the ordinary use of the English language. If the draftsman of section 80 wanted to introduce a requirement of a home as a basis for the granting of the relief in respect of the relief in respect of the relevant letting, I find it impossible to believe that he would not have used language which made the plain. And I find it impossible to believe that he was relying on the wholly different language of section 101 of the Act of 1979 to achieve it for him, more particularly when he, in section 80, uses words which, according to their ordinary meaning in English, have a totally different meaning and effect. Moreover I see no reason why it should be assumed that because the relief is granted in respect of the home of the taxpayer the additional relief should only attach to a letting to third parties as their homes. There is no necessary connection between the two, a fact which, it seems to me, is strongly emphasised by the total difference in language between section 80 and section 101 of the Act of 1979.

Both sides addressed to us arguments relating to the policy behind the enactment of section 80. For myself I do not find that inquiry of assistance. Let it be accepted that section 80 was designed to encourage householders who had surplus accommodation in their dwelling houses to make it, or some of it, available to other persons. The precise ambit of the circumstances in which relief was intended to be given can only be determined by reference to the language of section 80 itself and, for the reasons which I have indicated, I see nothing in section 80 to lead me to the conclusion which support the Crowns construction in the present case.

In the circumstances, and for the reasons which I have indicated, I think that the language of the Act of 1980 is such that the lettings made in this hotel were within the words "residential accommodation" and that accordingly the commissioners decision was erroneous in point of law and that the present appeal should as a result be allowed.

PARKER L.J. - I agree. I add a few words only because we are differing from the judge. It is quite plain from his judgment that he was encouraged to speculate on the purpose of the section by the silver-tongued advocacy of Mr. Moses. I am not so persuaded. It seems to me to be just as likely that the purpose behind this section was to encourage home owners to make surplus accommodation available on a bed and breakfast basis as it was that they should provide homes within their own homes for other people.

He had one further argument which was stressed, which was this, that it depended on what was on offer. As to that argument, if one supposes that the Gleneagles Hotel had not been so described, but was simply a large house with a street number and that outside it there was hung up a sign saying "residential accommodation available," and if one supposes further that somebody went in from the street and was offered that which is described in the stated case, it is to my mind unthinkable that he could turn round and say, "you are not offering me residential accommodation." Therefore, if that argument is taken at its face value, one comes inevitably to the conclusion that the lettings here must be within the words, as indeed is accepted, unless the meaning can be displaced by some compelling context. The context of sections 101 and 102 is the only context which is relied on, though the words used in those sections plainly recognise that there may be residences other than residences which are properly within the description of homes, and therefore it appears to me that the context, if it does anything, militates against the Crowns construction rather than supports it.

For those additional reasons I would also allow the appeal.

LEGGATT L.J. I also agree, and for the same reasons as PARKER L.J. I shall briefly say why I do in words of my own. In sections 101 and 102 of the Capital Gains Tax Act 1979, the concept of occupation as a home is derived not from the use of the term "residence" by itself, but from its use in the phrase "his only or main residence." In my judgment the expression "residential accommodation" does not directly or by association mean premises likely to be occupied as a home. It means living accommodation, by contrast, for example, with office accommodation. I regard as wholly artificial attempts to distinguish between a letting by the owner and a letting to the occupant; and between letting to a lodger and letting to a guest in a boarding house; and between a letting that is likely to be used by the occupant as his home and one that is not.

It is difficult to see either the merit or the application of the Crowns test, adopted by the judge, of "likely to be used as a home." That is not something that can be gauged objectively from the nature of the letting without regard to the occupant. There is, in my judgment, no justification for excluding hotels from the scope of the exemption from tax unless a test for distinguishing between hotels and other forms of residential accommodation can properly be derived from the use of that expression in section 80 of the Finance Act 1980. None can. No relevant distinction can be drawn between a letting to an undergraduate or nurse or lodger, such as the judge thought would be entitled to relief, and a letting to anyone else. All are lettings of residential accommodation indistinguishable from that which is provided by boarding or guest houses or indeed by hotels, and all are conducted on what the judge called "a commercial basis." They differ from each other, if at all, only in the average length of letting, but it is accepted on behalf of the Crown that the length of the letting is not determinative. This conclusion will not result in relief being extended to a taxpayer the whole or part of whose dwelling house is exclusively used as a hotel or a boarding house. It will apply only where a dwelling house has at any time been used wholly or partly for that or a like purpose by a person whose only or main residence it is.

In my judgment, the judges test is not warranted by its legislative context, nor would it be a practicable test to apply. Since there is no limitation imposed by the statute on the scope of residential accommodation entitled to relief, I too would allow the appeal.