[2009] UKFTT 162 (TC)
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 ROCKLIFFAppellant
- 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
1
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 15th 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 5th 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.