Pope & ors v HMRCC [2012] UKUT 206 (TCC)

Analysis

Jason Pope (Mr Pope) was a geologist who worked for a mining company in Angola. On 8 November 1998 Mr Pope went missing and it is believed he was abducted by Unita rebels. Nothing has been heard of him since that date. Prior to his death, Mr Pope assured his own life in the sum of £100,000 under a life assurance policy dated 15 April 1996 with Equitable. The assured sum was payable to Mr Pope or his personal representatives upon Equitable receiving satisfactory proof of Mr Pope’s death. Following negotiations with Mrs Pope’s mother, acting as his attorney pursuant to a power dated 30 January 1998, Equitable paid the sum of £100,000 plus £36,425.97 (the extra payment) referred to by Equitable as ‘interest’ on 29 September 2002. This amount was paid to an account in Mr Pope’s name and then to an offshore account in his name by his mother. The amount was payable following a deed of discharge entered into by Mr Pope’s mother (the deed of discharge) had previously entered into a deed of discharge which discharged Equitable from all further liabilities under the policy upon payment of those sums to Mr Pope’s next of kin. Equitable paid the sums to Mr and Mrs Pope on this basis. Mr Pope’s mother subsequently swore to his death and obtained a grant of representation in his estate.

HMRC issued assessments to income tax in respect of the extra payment to Mr Pope’s mother and father (the appellants) personally as recipients of the extra payment. The appellants appealed the assessment in the First-Tier Tribunal (Tax Chamber) (FTT) on the following grounds:

1. (1) if the extra payment was interest it was exempt from income tax under s329 of the Income and Corporation Taxes Act 1988 (ICTA);
2. (2) alternatively the extra payment was not interest but payment of a capital sum and thus not liable to income tax; and
3. (3) if a liability to income tax did arise the liability was that of Mr Pope and/or his estate rather than his parents.

The FTT rejected each of the appellants’ contentions and upheld HMRC assessments. The appellants appealed to the Upper Tribunal on the basis that the FTT had erred in law and advanced the same arguments as had been advanced below.

Held (allowing the appeal in part and dismissing the appeal in part):

1. (1) The extra payment was not exempt under s329 ICTA. The purpose of that provision was plainly that where a person was awarded damages with respect to personal injury or death and a court under specific statutory provisions awards interest on those damages that payment of interest is exempt from tax. There was a clear distinction between damages in respect of person’s death and monies payable under an insurance policy. On any possible analysis the extra payment could not be characterised as the former and thus was not exempt under s329.
2. (2) Each of the appellants’ arguments that the extra payment was not interest failed:
3. (i) The extra payment was in substance interest. The FTT had applied the two-fold test in Euro Hotels that for the extra payment to be interest there must be a sum of money upon which the interest was ascertained and that sum of money must be due to the same person to whom the interest is payable to. It was clear that not only was the FTT entitled to conclude that the extra payment was interest, but that that was the only conclusion open to it. It was clear that both Equitable and Mr Pope’s mother regarded the extra payment as interest and that Equitable calculated the sum of the extra payment on the benefit it had obtained from retention of the assured sum of £100,000 since 08 November 1998. The extra payment was payable to the same recipient as the assured sum.
4. (ii) The extra payment was not a capital receipt. The appellants’ submissions in this respect were displaced by the finding that the extra payment was in substance interest.
5. (iii) The extra payment was not an ex gratia payment by Equitable:
6. (a) The appellants’ submission that it was such as the sum under the life assurance policy was only contractually payable when Mr Pope’s death was legally certainty was misconceived as the policy merely required ‘satisfactory proof’ of his death.
7. (b) The appellants’ argument that only Mr Pope could sue on the breach of the life assurance policy and so the payment to his mother must have been ex gratia was misconceived as his mother received the assured sum and the extra payment in her capacity as Mr Pope’s attorney.
8. (c) It was misconceived of the appellants to argue that the deed of discharge nullified the life assurance policy and therefore the extra payment must have been ex gratia. Pursuant to the deed of discharge the appellants gave up any rights under the life assurance policy and so it was made for valuable consideration. Similarly, the argument that at the time of the payment Mr Pope was still legally alive failed because Equitable still had satisfactory proof of his death.
9. (d) It was clear from the fact that Equitable adopted a ‘general principle’ to pay interest at a given rate following the date when the death benefit was due that the extra payment was not ex gratia. The terms of the life assurance policy make it clear that while Equitable have discretion as to the amount of interest payable the decision whether to pay interest is not within its discretion.
10. (iv) There was a debt due under the life assurance policy. Interest ran on this debt from 8 November 1998. The appellants argued that because the date of Mr Pope’s death had not been confirmed at the date of the extra payment there was no debt under the policy upon which interest could run. However, it was clear from the terms of the life assurance policy that all was required was ‘satisfactory proof’ of Mr Pope’s death. This was provided prior to the date of the extra payment and accordingly there was a debt due at that time.
11. (v) The fact that the previous case law dealt with payments in a commercial context rather than in the context of a death was irrelevant. The case law made it plain that here a debt is due on a given date, irrespective of the cause of that debt, any payment made to compensate the creditor by reference to the passage of time since the due date is interest.
12. (3) The income was payable by Mr Pope or his estate and not by the appellants. HMRC argued that pursuant to the deed of discharge the appellants were entitled to the extra payment as Mr Pope’s next of kin. The FTT found in their favour. However, at the time of the extra payment Mr Pope was not legally dead and his estate was unadministered. Had he been found alive the appellants would not have been entitled to the extra payment as against Mr Pope or as against Equitable (absent the deed of discharge). Intestacy beneficiaries do not have a direct interest in the assets of an estate until the estate is ascertained in due course of administration. The deed of discharge covers the rights of the appellants to payment of the assured sum and the extra payment against Equitable but did not make them ‘entitled’ within the meaning of s59(1) ICTA. Accordingly, the appellants’ appeal must succeed on this ground.

JUDGMENT [1] The appellants appeal against a decision of the First-Tier Tribunal (FTT) (Judge Rachel Short and Mr William Haarer) dated 15 October 2010 dismissing appeals by the appellants against various assessments summarised below. Issues in summary [2] In summary, the FTT held that a payment of £36,425.97 which was made by the Equitable Life …

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