Mr Stanley E N Kings Mrs Marlyn J Kings v Richard K King (H M Inspector of Taxes) Chris Barker (H M Inspector of Taxes)

Mr Kings’ Accountants, Smith Starmer and Hart, submitted his income and expenditure accounts to the Inland Revenue. In the years ending 31 October 1988 and 1989 bank charges and interest were declared as expenses. In the year ended 31 October 1990, the income from rental receipts for 19 Hillside Way was not declared and there was no deduction claimed in respect of bank charges and interest. Also the October 1990 statement referred to the transfer of work in progress to own use to the value of £96,160. This entry referred to the transfer of 24 Harborough Road North from Mr Kings’ business. There was no entry in the October 1990 statement transferring 19 Hillside Way into Mr Kings’ business. The income and expenditure accounts submitted for the years ending 31 October 1991 to 31 October 1994 made no reference to the rental income and deductions in respect of loan charges and interest. The 1994 return was submitted by Moore Stephens, Chartered Accountants, which had taken over Smith Starmer and Hart.

After a period of time it became apparent to Mr Kings that a mistake must have occurred with his accounts following a significant increase in his tax liability. He discovered that his accountants had not claimed the interest on the Leeds and Holbeck mortgage as an allowable expense. Mr Kings attempted to contact Mr Strange but discovered that he had retired with a golden handshake. Mr Kings was not satisfied with the service provided by Mr Strange’s former firm, so in 1996 he engaged another Accountant, Mr David Smith, to look after his tax affairs. On 18 September 1996 Mr Smith submitted Mr Kings’ accounts for the year ending 31 October 1995 to the Inland Revenue. Within that letter he disclosed the receipt of rental income in respect of 19 Hillside Way. This letter was the beginningt of the dispute between Mr and Mrs Kings and Inland Revenue which has carried on for seven years.

Mr Smith made a mistake about the Nationwide mortgage secured against 24 Harborough Road North which led to an investigation by the Inland Revenue about whether Mr and Mrs Kings were entitled to MIRAS on the mortgage. Fortunately this matter has now been resolved, Inland Revenue have accepted that Mr and Mrs Kings were entitled to the relief offered by MIRAS on the Nationwide mortgage. Mr Smith also asked the Inland Revenue to share the tax liability for the rental receipts of 19 Hillside Way equally between Mr and Mrs Kings. They claim that Mr Smith did not have their authority to make that request.

On 23 February 1998 Mr Smith on behalf of Mr and Mrs Kings made an error or mistake relief claim under section 33 of the Taxes Management Act 1970. The claim was that the interest payments connected with the Leeds and Holbeck mortgage should be allowed as a deduction in Mr Kings’ trading accounts for the tax years 1992/93 to 1995/96. In addition the claim included the interest paid on the Nationwide Building Society mortgage then secured against 19 Hillside Way for the period following the letting. The claim was refused on 15 November 2000 by R Golding, an officer duly authorised by the Inland Revenue. His reason for refusing the claim was that the interest was not paid wholly and exclusively for the purposes of Mr Kings’ trade and accordingly Mr Kings was not entitled to deduct the interest from profits by virtue of section 74 (1) (a) Income and Corporation Taxes Act 1988 (hereinafter referred to as the 1988 Act).

In the seven years following Mr Smith’s letter of 18 September 1996 over 300 items of correspondence have been exchanged between the parties. The Appellants’ Member of Parliament has been representations on their behalf to Inland Revenue. Several meetings have been held between Inland Revenue officers and Mr and Mrs Kings to resolve the dispute. Inland Revenue has carried out a thorough investigation of Mr Kings’ complaint about his treatment. Mr Kings has engaged two other firms of accountants since he parted with Mr Smith.

I was referred to the following authorities:

The legislation concerning allowable deductions is contained in section 74(1) of the 1988 Act, the relevant parts of which provide:

“74(1) Subject to the provisions of the Tax Acts, in computing the amount of profits to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of:

(a)

any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocations;

(b)

any disbursements or expenses of maintenance of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation; ….”.

The Respondents accepted that the interest paid by Mr Kings on the overdraft with the Midland Bank up and until 28 February 1990 was allowable in full as a business expense because the overdraft was funding the renovation works at 24 Harborough Road North. Thus the interest was applied wholly and exclusively for the purposes of Mr Kings’ trade as a property developer in accordance with section 74(1) of the 1988 Act. On the 28 February 1990 Mr and Mrs Kings moved out of 19 Hillside Way into 24 Harborough Road North. From that point in time the Respondents contended that the interest paid on the overdraft with the Midland Bank and then subsequently on the Leeds and Holbeck Building Society mortgage was not applied wholly and exclusively for the purposes of Mr Kings’ trade as a property developer. Therefore, the interest paid did not qualify for deduction as a business expense under Case I of Schedule D.

Mr Death illustrated the Respondents’ contention by referring to Mr Kings’ accounts for the year ending 31 October 1989 submitted by his Accountants, Smith Starmer and Hart. Those accounts showed a figure of £96,160 for works in progress which was made up of:

The illustration provided by Mr Death would have a different outcome if the property, 19 Hillside Way, became an asset of Mr Kings’ business on 1 March 1990. In which case the balance sheet would return to shape and Mr Kings’ capital account would not be overdrawn. The loan interest would be funding the business assets. The interest would qualify as an allowable deduction under Case I of Schedule D in accordance with section 74 of the 1988 Act. Thus for Mr Kings’ claim for error or mistake relief to succeed, he must show on the balance of the probabilities that the property, 19 Hillside Way, became an asset of his trade as a property developer on 1 March 1990.

It is common ground between the parties that Mr and Mrs Kings purchased 19 Hillside Way in 1988 as their private residence not as stock of Mr Kings’ business. The dispute between the parties is whether 19 Hillside Way became an asset of Mr Kings’ trade on 1 March 1990 when the Appellants occupied 24 Harborough Road North as their home. The Respondents accept that as a matter of law it is possible for the owner to change his intentions in respect of the use of his property between the dates of acquisition and disposal (per Orr, LJ in Lionel Simmons Properties Ltd v Commissioners for Inland Revenue 53TC at page 488E). However, in this Appeal the Respondents contend that the Appellants have not adduced sufficient evidence to discharge the burden of proof on the balance of probabilities that they changed their intentions in respect of 19 Hillside Way. It is the Respondents’ view that 19 Hillside Way remained as a private investment of Mr and Mrs Kings until it was sold in 2000. Mr and Mrs Kings, on the other hand, assert that 19 Hillside Way became an asset of Mr Kings’ trade on 1 March 1990. The determination of the issue in dispute is essentially a question of fact.

The following facts were not in dispute:

The following matters were in dispute between the parties:

19 Hillside Way was acquired in the joint names of Mr and Mrs Kings and remained in their joint ownership until the premises were sold in 2000. The Leeds and Holbeck mortgage secured on 19 Hillside Way named Mr and Mrs Kings as the joint mortgagees. However, the tax returns and accounts submitted by Mr Kings showed that his business was carried on as a sole trader. In those circumstances Mr Death for the Respondents queried whether a jointly owned asset could become an asset in Mr Kings’ business as a sole trader. At the hearing Mr and Mrs Kings contended that Mrs Kings had become a partner in Mr Kings’ business. “We are a couple, we help each other out”. According to their evidence Mrs Kings rescued the business by putting into it her equity in Hillside Way. She also loaned the business a further £10,000 in 1996. Mr Kings, however, accepted that there were no documents at all to support that his business was a partnership between him and his wife. The business account with the Midland Bank was in his name. Mr Kings conceded that he had not informed his Accountants, other than Mr Strange, about the partnership. Mrs Kings described her role as a “sleeping partner” leaving the business to be run by her husband except for the books, which she completed.

I fully accept that Mr and Mrs Kings worked in tandem to resolve the cash flow problems confronting Mr Kings’ business in 1989/1990 and that Mrs Kings’ supported her husband through these difficult times. However, the fact that Mrs Kings helped out her husband is not sufficient to make her a partner in the business. The lack of documents supporting the existence of the partnership and that no-one appeared to be aware of it compels me to conclude that Mr Kings continued to run his business as a sole trader.

My finding that there was no business partnership between Mr and Mrs Kings does not rule out the possibility that 19 Hillside Way became an asset of Mr Kings’ business. Mr Death did not rely upon a legal or an accounting rule for his submission about the inclusion of jointly owned property in the accounts of a sole trader. In my view the question whether such a property can become an asset of a sole trader depends upon the stated intentions of the joint owners, which is the central issue of the error/mistake Appeal. However, the main thrust of Mr Death’s submission was that when Mr and Mrs Kings moved out of 19 Hillside Way the ownership of the property did not change from the joint ownership of Mr and Mrs Kings to the sole ownership of Mr Kings. Had this occurred it would have provided a powerful pointer that 19 Hillside Way had become part of Mr Kings’ trading stock. The fact that there was no change in ownership in respect of 19 Hillside Way strengthens the Respondents’ case rather than the Appellants’. In contrast there was a change of ownership when Mr and Mrs Kings moved into 24 Harborough Road North from the sole ownership of Mr Kings to the joint ownership of Mr and Mrs Kings which begs the question why there was no corresponding alteration in the ownership of 19 Hillside Way.

Mr Kings’ Income and Expenditure Account 1990 was a key document in this Appeal. It provided insight about Mr Kings’ intentions for the business around the critical period of 1 March 1990. Mr J Strange of Smith Starmer and Hart, Mr Kings’ Accountants, submitted the 1990 Account to the Inland Revenue on 30 April 1992. The Account recorded the transfer of Harborough Road North to private use under work in progress. However, there was no corresponding reference in the Account to the transfer of 19 Hillside Way from private use to trading stock. The description of Mr Kings’ business affairs in the Income and Expenditure Account 1990 supported the Respondents’ contentions.

Mr and Mrs Kings were adamant that Mr Strange knew about the transfer of the equity of 19 Hillside Way into Mr Kings’ business. Mrs Kings supplied Mr Strange with the 1989/1990 accounts in the “Simplex Book” which had “post it” notes attached setting out the payments under the two mortgages. In their view: “Mr Strange knew, he was privy to the information, we (Mr and Mrs Kings) put it in our books”. Mr Strange played an important role in securing the Leeds and Holbeck mortgage for them by providing a statement of Mr Kings’ future earning capacity. Mr and Mrs Kings concluded that Mr Strange let them down by not including the value of 19 Hillside Way in Mr Kings’ business accounts.

Mr and Mrs Kings relied on a passage in a letter from Mr Strange to Mr Kings dated 30 April 1992:

“I do anticipate that he (Inspector of Taxes) will question the transfer of 24 Harborough Road North to yourself to try and ensure that you are receiving the correct amount of loan interest relief. We shall cross that bridge when we come to it obviously”.

Mr Kings believed that the above passage was evidence that Mr Strange had notified the Respondents about the potential claim for interest relief in respect of 19 Hillside Way:

“This infers to me that he (Mr Strange) absolved any blame for not obtaining my correct relief leaving the interest relief very much in the air and in the Inland Revenue’s court”.

Further Mr Kings suggested that the letter provided documentary proof of his intention to transfer 19 Hillside Way into his business.

I have considered the contents of Mr Strange’s letter and concluded that Mr Kings’ interpretation is incorrect. In my view the loan interest relief related to 24 Harborough Road North not 19 Hillside Way. The contents of the letter provide no proof that 19 Hillside Way became an asset of the business. Mr Strange did not put the Respondents on notice about the issue of loan interest relief. His letter to them dated 6 May 1992 referred to the enclosure of Mr Kings’ accounts, no reference was made to loan interest relief.

Mr Strange’s letter dated 30 April 1992 also stated that Mr Kings approved the accounts, enclosing a copy for his records which raises the question why Mr Kings did not challenge at that time the accuracy of the accounts.

There is no evidence to support the suggestion that Mr Strange overlooked 19 Hillside Way when compiling Mr Kings’ Income and Expenditure Account for 1990. He was fully aware of Mr and Mrs Kings circumstances. He must have had a good reason for not including 19 Hillside Way in Mr Kings’ Accounts. I am satisfied that the 1990 Account represents the true and accurate position of Mr Kings’ business affairs as perceived by his Accountant, Mr Strange.

It is common ground between the parties that the original purpose of Mr Kings’ overdraft with the Midland Bank was to finance the building works at 24 Harborough Road North. Whilst this was being done the charges and the interest on the overdraft were an allowable business expense for tax purposes. According to the Respondents the link between the loan facility and Mr King’s trade as a property developer was broken when Mr and Mrs Kings occupied 24 Harborough Road North as their private residence. Thereafter, the Respondents believed that the overdraft and the subsequent mortgage with the Leeds and Holbeck Building Society were effectively financing the appropriation of 24 Harborough Road North from Mr Kings’ business.

Mr Kings, on the other hand, submitted that the overdraft and the mortgage were being used to maintain his business. According to Mr Kings the mortgage from the Leeds and Holbeck Building Society was a business loan because it was interest only and attracted an interest rate one per cent higher than the standard rate.

Prior to January 1991 the Midland Bank held the deeds of 24 Harborough Road North as security against the overdraft facility. 19 Hillside Way was subject to a mortgage of £23,000 from the Nationwide Building Society. On 9 January 1991 Mr and Mrs Kings’ solicitors received £94,995 from Leeds and Holbeck Building Society, and £30,000 from the Nationwide Building Society which were used to pay off the overdraft and redeem the £23,000 mortgage on Hillside Way. The redemption of the Nationwide mortgage was described by Mr Kings as a “pseudo redemption”(paperwork was exchanged but no actual cash except for the additional monies remaining after redemption). The Leeds and Holbeck mortgage was secured against 19 Hillside Way, whilst 24 Harborough Road North provided the security for the £30,000 Nationwide mortgage. Mr Kings presented these facts on the basis that there was an orderly transition in respect of his business assets and finances, namely: Hillside Way replacing Harborough Road North as his principal business asset and the Leeds and Holbeck mortgage succeeding the Midland Bank overdraft facility as his main source of business finance.

My assessment of the facts is somewhat different from the orderly arrangements presented by Mr Kings. In 1989 the Appellants were facing a difficult situation. According to Mrs Kings: “the housing market fell away, how are we going to keep up, interest rates were going sky high. We could not keep up with the interest payments of £19,000 per annum. It was snowballing”. Mr Kings took up employment with Persimmon Homes and started another business as a kitchen equipment dealer. In the summer of 1989 Mr and Mrs Kings put their home, 19 Hillside Way, on the market originally for £170,000 followed by fairly rapid price cuts to £140,000. The property remained for sale until at least April 1991 when the asking price stood at £130,000. When their home did not sell they took advice and decided to pool all their assets to re-finance the bank loan. Hillside Way was let to provide an additional revenue stream which could be set off against the cost of the loans and provide a boost to Mr Kings’ earning capacity for the purposes of securing alternative financing. Harborough Road North was transferred out of Mr Kings’ accounts and became the family home. The alternative finance arrangement through the Abbey National fell through because Mr Kings could not meet the criterion of last two years trading. The mortgage secured from the Leeds and Holbeck Building Society did not clear entirely the sum owed under the overdraft with the result that it was necessary to obtain additional finance from the Nationwide Building Society. During this period there was no sign of property development activity by Mr Kings rather he was deploying his skills as a sub-contractor and setting up his new business as a kitchen equipment dealer.

I consider that Mr and Mrs Kings deserve great credit for the steps that they took during this period to avoid potentially disastrous consequences from the severe economic recession. However, my analysis of the reasons for those steps were to preserve a reasonable standard of living and to safeguard their personal capital rather than save Mr Kings’ business as a property developer. 19 Hillside Way was central to their strategy as an investment providing a revenue stream not as an asset for Mr Kings’ ailing property development business.

The nature of trading stock involves selling it on at a profit after working on it and improving its value. The Respondents contended that this did not happen in respect of 19 Hillside Way at or near the material time of March 1990 when Mr Kings stated that the property had become part of his business. In contrast Mr Kings submitted that he had carried out improvement works on 19 Hillside Way to the value of £14,901 for materials only, (see the schedule in paragraph 18). The work was spread over a period of ten years from 1989 to 1999. He was prevented from carrying out improvements inside the house because Mr and Mrs Hughes, the tenants of Hillside Way refused him entry. Mr Kings tried to evict the tenants around 1992 but the neighbours to 19 Hillside Way did not back him with the result that Mr and Mrs Hughes acquired sitting tenants’ rights and were not removed from the property until they left of their own accord on the 30 August 1998.

The Respondents accepted that Mr Kings improved 19 Hillside Way but the timing of those improvements suggested to them that they were not connected with Mr Kings’ trade as a property developer. Over one third of the expenditure on improvements which included fitting a new bathroom and kitchen and decorative work to the ceilings and the lounge was incurred in 1989 when Mr and Mrs Kings occupied 19 Hillside Way as their home. At that time Mr and Mrs Kings had no intention of moving out of 19 Hillside Way and appropriating the property as trading stock for Mr Kings’ business. The other main period for expenditure on the property was in 1998/1999 after the departure of Mr and Mrs Hughes when a further £4,696 was spent including installation of central heating. The Respondents say that the expenditure in 1998/1999 was too late in time to demonstrate a change of intention on the part of the Appellants in 1990 about the supposed transfer of 19 Hillside Way to trading stock.

Mr and Mrs Kings’ Estate Agents advised them in 1990 that 19 Hillside Way had not sold because it required a modern central heating system and an en-suite to the bedroom. If this was known in 1990 why were the required improvements not carried out then when according to Mr Kings 19 Hillside Way had become part of his trading stock. The fact that the central heating and the en-suite were installed in 1999 rather than in 1990 adds support to the Respondents’ contention that the improvements carried out on 19 Hillside Way were not connected with Mr Kings’ trade as a property developer.

The Respondents pointed out that 19 Hillside Way had been put on the market prior to March 1990 which indicated to them that the Appellants did not intend to renovate the property and treat it as trading stock because no time had been allowed for the works. Further, the Appellants had no available funds in February 1990 to carry out improvements because Mr Kings had exceeded his limit on the overdraft with the Midland Bank. After the new financial arrangements were put in place in 1991, Mr Kings had the ability to draw on an overdraft of £5,000. He also deposited £14,000 in his business account on the 13 August 1991. This injection of funds did not herald a fresh period of sustained activity by Mr Kings to carry out the necessary renovations of 19 Hillside Way. On the evidence Mr and Mrs Hughes did not have sitting tenants’ rights in 1991. The property was subject to an assured shorthold tenancy which could have been brought to an end at the expiry of the contractual term enabling Mr Kings to undertake the improvements.

I am persuaded by the Respondents’ submission that the schedule of improvements to 19 Hillside Way do not support the Appellants’ case that the property was transferred to trading stock on 1 March 1990. I place particular weight on the chronology which indicated that the major improvements to 19 Hillside were either carried out when Mr and Mrs Kings were in private occupation or at a date too distant from 1 March 1990. Further, 19 Hillside Way was on the market prior to March 1990. There were no funds at the material time available for improvements to 19 Hillside Way. These findings of fact provide additional support for the conclusion that I have reached on the significance of the schedule of improvements.

Mr Kings feels very aggrieved about the Respondents’ decision not to allow in full the interest payments on the Leeds and Holbeck mortgage as a business expense. Mr and Mrs Kings are hard working people who took decisive action including moving out of their home to a smaller property to ensure that they did not become a burden to the tax payer. Mr Kings looks on his business as a single entity. He does not distinguish between working as a sub-contactor, property developer and landlord as separate businesses. Unfortunately his global view of the business does not fit in with the Tax Law which requires categories of income to be assessed for tax under different schedules and each schedule having different permutations for calculating expenses that reduce the potential income eligible for income tax.

Mr Kings believes that he is entitled to the full interest payments on the mortgage as a business expense because he says 19 Hillside Way became part of his business on the 1 March 1990. The strongest factor in Mr Kings’ favour is that he had been carrying on the trade of property developer since 1985, renovating one property at a time whilst retaining a separate property for his family home. However, the facts show that effectively he ceased to develop property in 1989 due to circumstances beyond his control, namely, the rapid rise in interest rates and the fall in the housing market. Mr Kings responded to this difficult economic climate by diversifying: sub contracting with Persimmon Homes and setting up a kitchen equipment dealership. Mr and Mrs Kings decided to put their home up for sale in the hope that the proceeds would clear the overdraft with the Midland Bank. When the sale did not materialise they decided to re-structure their financial borrowings using 19 Hillside Way as security for the loan and as a source of additional revenue. Mr Kings assumed the role of landlord with the rents paid into his business account. However, the business of renting out property is not the same business as renovating and selling property. The rental business is governed by the requirements of Schedule A of the Tax Acts which limits the amount of relief that can be claimed against loan interest. In order for Mr Kings to claim the relief on the full loan interest payments he must establish on the balance of probabilities that on the 1 March 1990 19 Hillside Way became part of the trading stock of his property business assessed for tax under Case 1 Schedule D of the Tax Acts. The fact that Mr Kings received income in the form of rents from 19 Hillside Way is a factor which goes against his assertion that 19 Hillside Way became trading stock.

Mr Kings has not satisfied me on the balance of probabilities that 19 Hillside Way became part of his trading stock on 1 March 1990. My starting point is that 19 Hillside Way was purchased in 1988 as a private house. I can find no persuasive evidence that supports a change of intention on the part of Mr and Mrs Kings on 1 March 1990 to transfer the property to trading stock. I am satisfied that there was no business partnership of Mr and Mrs Kings. The property was not transferred to the sole legal ownership of Mr Kings unlike 24 Harborough Road North which was transferred into joint ownership. The accounts for the relevant period do not show that 19 Hillside Way was brought into the business. I am satisfied that Mr Kings’ Accountants did not make a mistake when compiling the accounts by leaving out 19 Hillside Way. The chronology for the improvements to 19 Hillside Way showed that the improvements were not connected in time with the 1 March 1990 when the property was apparently transferred to business stock. In my view the actions taken by Mr and Mrs Kings in 1990 were designed to preserve their standard of living and to safeguard their capital rather than save Mr Kings’ business as a property developer. Thus the interest paid on the Leeds and Holbeck mortgage cannot be allowed in full as a business expense because 19 Hillside Way was not appropriated to the trading stock of Mr Kings’ business. I, therefore, dismiss Mr Kings’ appeal in respect of his claim for error or mistake relief for the tax years1992/93, 1993/94, 1994/95 and 1995/96 for the reasons outlined above.

Income from property is charged to tax under Schedule A of the Tax Acts. Schedule A is set out in section 15 of the 1988 Act. Under section 21(1) of the 1988 Act:

“Income tax under Schedule A shall be charged on and paid by the persons receiving or entitled to the profits or gains in respect of which tax under that Schedule is directed by the Income Taxes Act to be charged” (pre 1995-96).

“Income tax under Schedule A shall be charged on and paid by the persons receiving or entitled to the income in respect of which the tax is directed by the Income Tax Acts to be charged” (post 1995-96).

Mr and Mrs Kings were not married during the period to which the Appeals relate.

Mr and Mrs Kings were the joint owners of 19 Hillside Way from 4 July 1988 to 28 July 2000.

The Respondents contended that where property was jointly owned, the rents from that property would normally be assessed on the owners in proportion to their shares in the property. Further, even where the rents were received by one of the parties that in itself was insufficient to shift the presumption that both owners were entitled to their share of the rents. Thus according to the Respondents there would need to be clear evidence demonstrating that Mrs Kings had given up her entitlement to the half share of the rents and that this act should be recorded in writing.

The Respondents relied on documentary evidence to support their submission that Mrs Kings should be assessed to tax on the half share of the rents received. In particular the correspondence from the Nationwide Building Society addressed to both Mr and Mrs Kings agreeing to the letting of 19 Hillside Way and an invoice from Barry Paterson (Plumbing and Heating) dated 12 October 1990 which referred to Mr and Mrs King as the landlord of the property. Mr Death for the Respondents also referred to the letter of Mr Smith (Mr and Mrs Kings’ Accountants at the time) of the 18 September 1996 where he suggested that the rents from 19 Hillside Way should be shared equally between Mr and Mrs Kings.

I am in some difficulty with the Respondents’ interpretation of the statute as cited to me at the hearing. Under section 21(1) of the 1988 Act it states that “tax shall be charged on and paid by the persons receiving or entitled to the payments”. I interpret the wording that it can be either the person receiving or the person entitled to the payments that is charged to tax. The section does not specify that persons entitled should be charged to tax before persons receiving. Also there is no requirement in the statute for the person entitled to evidence in writing his surrender of that entitlement. Even if I am wrong on the construction of section 21(1), I am satisfied that there is clear evidence that Mrs Kings surrendered her entitlement to the rents received on 19 Hillside Way and that Mr Kings alone is assessable to income tax on the rents received. My conclusion is based on the following:

In view of my findings I have decided that the rents received from 19 Hillside Way should be assessed for tax against Mr Kings alone. I, therefore, allow the appeal of Mrs Kings in respect of the tax assessments for the years 1996/97, 1997/98 and 1998/99 insofar as they relate to the rents received from Hillside Way.

The following matters were not disputed at the hearing but require a determination in order to calculate the correct tax assessment following on my decisions on the two substantive matters:

At the end of the hearing on 27 November 2003 I directed that the Respondents calculate the assessments for tax for the potential outcomes arising from the Appeals and agree the assessments with the Appellants and deliver them to me by the 20 December 2003. The assessments were faxed to the Office of Special Commissioners on the 18 December 2003. The Appellants wrote to the Office on 17 December 2003 stating that they were agreeable to the way in which figures and scenarios have been put together by the Respondents except the following three points:

The Office of Special Commissioners received an additional letter dated 30 December 2003 from Mr and Mrs Kings which seemed to cast doubt on their conditional agreement with the assessments for the various outcomes submitted by the Respondents on 18 December 2003. I have read this letter several times and concluded that it is a re-statement of their case rather than a challenge to the correctness of the assessments other than the three points in dispute. In any event I am satisfied about the accuracy of the assessments and make the following determinations in respect of the five Appeals before me.

I make the following determinations:

I determine that Mr Kings is liable for income tax on the rents received from 19 Hillside Way in the following amounts for the stated tax year: