Roger William Morgan & Anor v The Commissioners for HMRC

“[51] In summary, therefore, the following are the principles applicable in a case such as this, where a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage, but without any express declaration of their beneficial interests.

The starting point is that equity follows the law and they are joint tenants both in law and in equity.

That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change.

Their common intention is to be deduced objectively from their conduct: ‘the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party’ (Lord Diplock in Gissing v Gissing [1970] 2 All ER 780 at 790, [1971] AC 886 at 906). Examples of the sort of evidence which might be relevant to drawing such inferences are given in Stack v Dowden [2007] 2 All ER 929 at [69], [2007] 2 AC 432.

In those cases where it is clear either (a) that the parties did not intend joint tenancy at the outset, or (b) had changed their original intention, but it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, ‘the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property’: Chadwick LJ in Oxley v Hiscock [2004] 3 All ER 703 at [69], [2005] Fam 211. In our judgment, ‘the whole course of dealing … in relation to the property’ should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties’ actual intentions.

Each case will turn on its own facts. Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were either intended (as in case (3)) or fair (as in case (4)).”

[52] This case is not concerned with a family home which is put into the name of one party only. The starting point is different. The first issue is whether it was intended that the other party have any beneficial interest in the property at all. If he does, the second issue is what that interest is. There is no presumption of joint beneficial ownership. But their common intention has once again to be deduced objectively from their conduct. If the evidence shows a common intention to share beneficial ownership but does not show what shares were intended, the court will have to proceed as at [51](4) and (5), above.”

“But parties to a transaction in connection with the acquisition of land may well have formed a common intention that the beneficial interest in the land shall be vested in them jointly without having used express words to communicate this intention to one another; or their recollections of the words used may be imperfect or conflicting by the time any dispute arises. In such a case — a common one where the parties are spouses whose marriage has broken down — it may be possible to infer their common intention from their conduct.

As in so many branches of English law in which legal rights and obligations depend upon the intentions of the parties to a transaction, the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party. On the other hand, he is not bound by any inference which the other party draws as to his intention unless that inference is one which can reasonably be drawn from his words or conduct. It is in this sense that in the branch of English law relating to constructive, implied or resulting trusts effect is given to the inferences as to the intentions of parties to a transaction which a reasonable man would draw from their words or conduct and not to any subjective intention or absence of intention which was not made manifest at the time of the transaction itself. It is for the court to determine what those inferences are.”

“...

The question whether one party to the relationship acquires rights to property the legal title to which is vested in the other party must be answered in terms of the existing law of trusts. There are no special doctrines of equity, applicable in this field alone.

In a case such as the present the inquiry must proceed in two stages. First, by considering whether something happened between the parties in the nature of bargain, promise or tacit common intention, at the time of the acquisition. Second, if the answer is "Yes," by asking whether the claimant subsequently conducted herself in a manner which was (a) detrimental to herself, and (b) referable to whatever happened on acquisition. (I use the expression "on acquisition" for simplicity. In fact, the event happening between the parties which, if followed by the relevant type of conduct on the part of the claimant, can lead to the creation of an interest in the claimant, may itself occur after acquisition. The beneficial interests may change in the course of the relationship.)

...”

“At a high level of generality, there is much common ground between the doctrines of proprietary estoppel and the constructive trust, just as there is between proprietary estoppel and part performance. All are concerned with equity’s intervention to provide relief against unconscionable conduct, whether as between neighbouring landowners, or vendor and purchaser, or relatives who make informal arrangements for sharing a home, or a fiduciary and the beneficiary or client to whom he owes a fiduciary obligation. The overlap between estoppel and part performance has been thoroughly examined in the defendants’ written submissions, with a survey of authorities from Gregory v Mighell (1811) 18 Ves 328, 34 ER 341 to Take Harvest Ltd v Liu [1993] 2 All ER 459, [1993] AC 552.

“[56] The distinction between proprietary estoppel and constructive trust must therefore be kept in mind, but it appears from Cobbe that, in some situations at least, both doctrines have a requirement for completeness of agreement with respect to an interest in property. Certainty as to that interest in those situations is a common component. A relevant situation would be where the transaction is commercial in nature. In my judgment, the transaction in the present case should be treated as commercial in nature since the parties were dealing at arm’s length, and they had ready access to the services of lawyers had they wished to use them.

[57] In my judgment, there is a common thread running through the speeches of Lord Scott and Lord Walker. Applying what Lord Walker said in relation to proprietary estoppel also to constructive trust, that common thread is that, if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property, or, if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified, or if the parties did not expect their agreement to be immediately binding, neither party can rely on constructive trust as a means of enforcing their original agreement. In other words, at least in those situations, if their agreement (which does not comply with s 2(1)) is incomplete, they cannot utilise the doctrine of proprietary estoppel or the doctrine of constructive trust to make their agreement binding on the other party by virtue of s 2(5) of the 1989 Act.

[58] This interpretation of Cobbe is consistent with the observations of Lord Neuberger of Abbotsbury in Thorner v Major [2009] UKHL 18, 12 ITELR 62, [2009] 1 WLR 776, which was decided after judgment (3). In that case, Lord Neuberger observed:

[59] The relevant issues in this case are whether there was only an agreement to enter into a further formal agreement or whether there were matters remaining to be agreed which meant that the interests in property to be acquired were not defined with sufficient clarity or whether the parties did not expect their agreement to be legally binding. There is no need to consider in this case whether any outstanding matter was only of a trivial nature as we are not concerned with any such matter.”

The common intention was made out on the evidence, with Mr and Mrs Morgan treating the Company as the beneficial owner of Plot 2 as soon as work commenced at the Company’s cost and that the same procedure and common intention followed as regards Plot 3.

The Company and Mr and Mrs Morgan intended that the Company would become the owner of Plot 2 and then Plot 3 as the quid pro quo for undertaking the development work and that they regarded themselves as legally bound by this intention once the work commenced.

In turn, the Company relied upon this common intention to its detriment by accepting the expense of the works as its liability, paid for through reconciliations of the directors’ loan accounts.

There is no evidence to demonstrate a common intention. Indeed, such a purported common intention is negatived by the company minute of 30 April 2014 making no mention of it and accepting that the transfer would be in the future at dates to be decided. Mr Marks noted that the Company did not declare a disposition in 2015-2016, which is indicative of Mr and Mrs Morgan’s understanding that there had no such disposition. This was a commercial situation where legal advice had been taken as to the legal steps required to be taken to sell the Plots to the Company and all the terms were not agreed until the legal title was transferred, including the price to be paid by the Company and the date upon which the Plot was to be transferred.

The Company cannot think or act on its own and, in the absence of a written record, there can have been no common intention between the Company and Mr and Mrs Morgan and certainly no express discussions; at best, it was an internalised view of the position.

Similarly, no inference can be made as there is no evidence of any words or conduct with regard to their dealings with the Company to take that inference from. If anything, the evidence of their words and conduct was consistent with an intention to sell the land to the Company and not with the Company becoming the owner of the land by commencing building on it.

Mr Marks submitted that the directors’ loan account provided evidence that the beneficial interest in Plot 2 and Plot 3 had not been transferred to the Company ahead of the transfers of their respective legal title. He notes that the directors’ loan accounts were not credited with the purchase prices until the time of the transfers of the legal title and, as regards Plot 3, was in the sum of £120,000 rather than the £150,000 envisaged in the board minute.

Mr Marks also submitted that a constructive trust could not arise over the entirety of the beneficial interest in Plot 3 because the Company was a vehicle to develop the properties, Mr and Mrs Morgan were the sole shareholders of the Company, and so they would be the ultimate beneficiaries of the net profits despite the legal structure of the transactions which had taken place. This is effectively what happened by the proceeds of sale of Plot 2 being paid into the directors’ loan account and by £309,000 of the proceeds of Plot 3 ultimately being transferred out of the Company.

Mr Marks took issue with the Company’s ability to enter into an agreement for the purposes of a common intention as a matter of company law. He relied upon section 190(1) of the Companies Act 2006 to the effect that a company cannot acquire a substantial non-cash asset from a director or connected person unless the arrangement has been approved by a members’ resolution or is conditional on such approval being obtained. The failure to comply with this reinforces that no agreement was made prior to the transfers of the legal title. Although it is possible for the unanimous agreement of shareholders to allow for this pursuant to the Duomatic principle, there is no evidence of such an agreement. The internalised and unexpressed decision of the shareholders is insufficient. Mr Marks particularly relied upon Rolfe v Rolfe [2010] EWHC 244 (Ch) per Newey J at [35], [36] and [41]:

Mr Marks also disputed that the Company relied upon any common intention to its detriment. Again, he submitted that as the Company cannot think for itself it cannot have relied upon any reasonable belief that it was acquiring a beneficial interest in land. In any event, if the Company received the beneficial interest in advance of the works being completed it received an advantage rather than incurred a detriment. Further, it would not have been unconscionable for Mr and Mrs Morgan not to transfer the properties, as they could instead have elected to write off their loans in return for being reimbursed the costs of the development from the costs of sale.

“29(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment –

that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or

that an assessment to tax is or has become insufficient, or

that any relief which has been given is or has become excessive,

the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.

...

Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above–

in respect of the year of assessment mentioned in that subsection; and

in the same capacity as that in which he made and delivered the return,

unless one of the two conditions mentioned below is fulfilled.

The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf.

The second condition is that at the time when an officer of the Board –

ceased to be entitled to give notice of his intention to enquire into the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment; or

in a case where a notice of enquiry into the return was given –

issued a partial closure notice as regards a matter to which the situation mentioned in subsection (1) above relates, or

if no such partial closure notice was issued, issued a final closure notice,

the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.

For the purposes of subsection (5) above, information is made available to an officer of the Board if –

it is contained in the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return;

it is contained in any claim made as regards the relevant year of assessment by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim;

it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer; or

it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above –

could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or

are notified in writing by the taxpayer to an officer of the Board.

In subsection (6) above –

any reference to the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment includes –

a reference to any return of his under that section for either of the two immediately preceding years of assessment;

where the return is under section 8 and the taxpayer carries on a trade, profession or business in partnership, a reference to any partnership return with respect to the partnership for the relevant year of assessment or either of those periods; and

any reference in paragraphs (b) to (d) to the taxpayer includes a reference to a person acting on his behalf.

...”

“[100] We endeavour to summarise the principles that we derive from Patten LJ’s judgment as follows:

The test in s 29(5) is applied by reference to a hypothetical HMRC officer not the actual officer in the case. The officer has the characteristics of an officer of general competence, knowledge or skill which include a reasonable knowledge and understanding of the law.

The test requires the court or tribunal to identify the information that is treated by s 29(6) as available to the hypothetical officer at the relevant time and determine whether on the basis of that information the hypothetical officer applying that level of knowledge and skill could not have been reasonably expected to be aware of the insufficiency.

The hypothetical officer is expected to apply his knowledge of the law to the facts disclosed to form a view as to whether or not an insufficiency exists (Moses LJ, Lansdowne [69]; Patten LJ, Sanderson [23]).

We agree therefore with Mr Firth that the test does assume that the hypothetical officer will apply the appropriate level of knowledge and skill to the information that is treated as being available before the level of awareness is tested. The test does not require that the actual insufficiency is identified on the face of the return.

But the question of the knowledge of the hypothetical officer cuts both ways. He or she is not expected to resolve every question of law particularly in complex cases (Patten LJ, Sanderson [23], Lansdowne [69]). In some cases, it may be that the law is so complex that the inspector could not reasonably have been expected to be aware of the insufficiency (Moses LJ, Lansdowne [69]; Patten LJ, Sanderson [17](3)).

The hypothetical officer must be aware of the actual insufficiency from the information that is treated as available by s 29(6) (Auld LJ, Langham v Veltema [33] – [34]; Patten LJ, Sanderson [22]). The information need not be sufficient to enable HMRC to prove its case (Moses LJ, Lansdowne [69]) but it must be more than would prompt the hypothetical officer to raise an enquiry (Auld LJ, Langham v Veltema [33]; Patten LJ, Sanderson [35]).

As can be seen from the discussion in Sanderson (see [23]), the level of awareness is a question of judgment not a particular standard of proof (see also Moses LJ in Lansdowne [70]). The information made available must ‘justify’ raising the additional assessment (Moses LJ, Lansdowne [69]) or be sufficient to enable HMRC to make a decision whether to raise an additional assessment (Lewison J in the High Court in Lansdowne [2010] EWHC 2582 (Ch), [2011] STC 372, at [48]).”

There are two critical questions. First, when did HMRC have sufficient information to be aware that the disposal of Plot 3 took place by virtue of a constructive trust rather than the later transfer of legal title? Secondly, when did HMRC have sufficient information to be aware that this disposal took place in the 2015-2016 tax year rather than the 2016-2017 tax year?

As to the first question, Mitchell Charlesworth set out Mr and Mrs Morgan’s position as to the constructive trust in letters dated 17 August 2017, 25 October 2017 and 2 January 2018. Although further detail was included in later letters (and therefore after the enquiry window) there was still sufficient information for the hypothetical officer to be aware of the insufficiency.

As to the second question, Mitchell Charlesworth’s 17 August 2017 letter stated that the Company held a beneficial interest from the date it entered the land and construction commenced. Mitchell Charlesworth again stated in their letter dated 2 January 2018 that the Company acquired the beneficial interest in all the plots immediately that it entered the land and commenced construction work. Mr Rowell accepted that these letters did not state when the works to Plot 3 commenced. However, it must have been clear that this was before the 2016-2017 tax year because HMRC were aware from letters from the Valuation Office Agency that the completed property on Plot 3 had been sold in July 2016, and so it would not have been possible for the construction to have started in the 2016-2017 tax year.

The relevant date is 12 January 2018, being the last date to open an enquiry, being twelve months after the filing of the 2015-2016 return.

Mr Marks accepts that the date of commencement for Plot 2 was disclosed (being early 2013). However, no information was given in writing as to when the construction of Plot 3 began.

Mitchell Charlesworth stated in their letter dated 13 April 2017 that the construction had begun prior to the legal transfer but did not say when. The enclosures with this letter did not provide any information about when Plot 3 was constructed.

Mitchell Charlesworth’s further correspondence did not provide any date for the start of the construction work or the transfer of the beneficial interest until a letter dated 30 July 2018 referred to the disposal on 1 July 2015. However, this was after the relevant date when a notification of enquiry could have been made under section 8 of the TMA 1970.

“As discussed, our clients have confirmed that construction of plots 2 and 3 had commenced prior to the transfer of those plots to the company. We can accept therefore that the plots 2 and 3 will not fall within the Principal Private Residence Exemption.”

“As discussed, we are now enclosing a Capital Gains Tax calculation for the year ended 5 April 2015 in respect of the disposal of Plot 2 at Cranfield. We are also enclosing supporting copy invoices in respect of the costs incurred. Please note that Plot 3 was transferred to the company in July 2016 and details of the disposal will therefore be included on our client’s 2016/17 tax returns in due course.”

“Firstly we can confirm that all costs of the construction of the properties has been borne by the company which is why no relief for these costs have been included in the capital gains tax calculation. On the basis that all costs were incurred by the company, the ownership of the buildings (as opposed to the land) has always been with the company which impacts on the valuation of plots 2 and 3 which you are now seeking to determine.”

“It is clearly the case that, immediately construction work commenced, the company was in occupation of the land.

...

It could be argued that the company’s beneficial interest, once construction commenced, was held over both the land and the building being constructed. If this is the case it would be bring the deemed date of disposal of the land by Mr and Mrs Morgan forward to the date that construction commenced (rather than the later date when legal title was conveyed to the company). This would seem to be a correct interpretation of the deeming provisions. The transfer of legal title simply followed the earlier transfer of beneficial interest and formalised title so as to facilitate the disposal of the properties by the company. Alternatively the company would have beneficial ownership from day 1 with the beneficial interest in the bare land transferred by Mr and Mrs Morgan at the later date.

...

Bearing in mind the above matters it is clear that the company held a beneficial interest in the land, or the building being constructed on it, from the date that the company entered the land and construction work commenced. Either way, the value at which the two plots were transferred to the company should therefore be based on the bare value of that land and should not include the value of the buildings on it (whether part or wholly complete).

We are enclosing a copy of a letter received from your colleagues at the Statutory Valuations Team providing their opinion on the valuation of plots 2 and 3 in May 2014 and July 2016 respectively. These valuations are not accepted.”

“In law, land includes any buildings situated on it. We would agree ‘that the legal owner of the asset is not necessarily its beneficial owner and that it is the beneficial ownership (not legal ownership) which capital gains tax principally follows’. However for a piece of land there cannot be a legal and beneficial owner of the land and a different beneficial owner of the buildings, the land and its associated buildings are one asset.

In your letter of 17 August 2017 you have set out your view of the matter, which is that although the legal interest did not transfer until the later date to the company, the beneficial interest transferred at an earlier date when the construction commenced. You also indicated that you believe that there was a trust in existence.

It is not up to HMRC to prove that a trust does not exist, rather it needs to be shown that the trust does exist and evidence needs to be provided to support this. There is no indication in your letter that written evidence of a trust is held.”

“We note your agreement that it is beneficial ownership that is relevant for capital gains tax purposes and that the beneficial ownership of the interest could have transferred at the time that construction commenced subject to the existence of a constructive trust over the land. We have outlined in our letter of 17 August 2017 the three factors that are required to establish a common intention constructive trust and you have repeated these in your letter.

You have stated that there is no agreement or common intention that the parties should share beneficial ownership of the land on the basis that there was no agreement/common intention at the time that Mr and Mrs Morgan originally purchased the land.

...

It is clear from the actions taken by Mr and Mrs Morgan that the company was permitted to enter the land and, from that point, the company was obligated to fund all costs of construction (and shoulder any consequent liability) although subsequently beneficially entitled to receive the entire proceeds from the disposal of the developed plots. A common intention constructive trust was therefore established at the point that the company entered the land (such a trust capable of being established subsequent to the date of acquisition of the land under the authority of the case law outlined above) and at which time beneficial interest was also transferred. Bearing in mind the history of the construction at the site concerned it is difficult to draw any other conclusions.”

“As outlined in my previous letter dated 12 October 2017, whether or not there is a constructive trust is a question of fact, and I need to have details of all of the facts supported by the relevant evidence.

Whilst your latest letter does set down some of your argument as to why there may be a constructive trust, the evidence I have received so far does not support your contention that there was a constructive trust. Should you wish to contend that this was the case then I will need a full and detailed account of all the facts, supported by the relevant evidence. This will then help us to consider the arguments that you have put forward.”

“You are not contending that a constructive trust may have existed as outlined in previous correspondence. You have, however, requested a full and detailed account of all the facts. These facts have been set out in detail in the correspondence, particularly our letters of 17 August 2017 and 25 October 2017. We are not sure what further facts you require and, indeed, you acknowledge in your letter that we have set down our arguments as to why there was a constructive trust. The original ownership of the plots, the transfer of the plots to D & R Developments Limited and the subsequent development and sale of the plots by the company has been clearly explained in earlier correspondence. You state that the evidence that you have received so far does not support the contention that there was a constructive trust although you do not explain or justify this statement. ...

...

It is clearly the case that our clients (husband and wife and directors of the company) would have had discussions on a daily basis about the development of the plots although you would not expect a written record to be kept of those discussions. Rather, as Lord Neuberger states, it is the actions of the parties that speak for themselves in this case. From the outset our clients incorporated a new company as the vehicle to develop all the plots and this indeed, as a matter of fact, is what happened. The company acquired a beneficial interest in all the plots immediately that it entered the land and commenced construction work; the only difference with plots 2 and 3 (as compared to the other plots) is that legal title (irrelevant for tax purposes) was transferred after construction had commenced. This does not, however, impact on the earlier transfer of beneficial interest which is evidenced by the fact that all the plots were developed in the same way by the company which the company ultimately solely entitled to the sale proceeds from the disposal of the plots.

...”

“[29] This appeal is concerned with proprietary estoppel. An academic authority (Simon Gardner, An Introduction to Land Law (2007) p101) has recently commented:

“There is no definition of proprietary estoppel that is both comprehensive and uncontroversial (and many attempts at one have been neither).”

Nevertheless most scholars agree that the doctrine is based on three main elements, although they express them in slightly different terms: a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance (see Megarry & Wade, Law of Real Property, 7th edition (2008) para 16-001; Gray & Gray, Elements of Land Law, 5th edition (2009) para 9.2.8; Snell’s Equity, 31 st edition (2005) paras 10-16 to 10-19; Gardner, An Introduction to Land Law (2007) para 7.1.1).”

The discussions between Mr and Mrs Morgan constituted assurances to the Company that it would be the owner of Plot 3 in return for carrying out and paying for the construction (such payment being by way of becoming liable to reimburse Mr and Mrs Morgan through their directors’ loan accounts).

The Company relied upon the assurances by carrying out and paying for the works as anticipated.

The Company suffered a detriment by way of its liability to Mr and Mrs Morgan.

Except as otherwise expressly provided, the sums allowable as a deduction from the consideration in the computation of the gain accruing to a person on the disposal of an asset shall be restricted to–

the amount or value of the consideration, in money or money’s worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset, together with the incidental costs to him of the acquisition or, if the asset was not acquired by him, any expenditure wholly and exclusively incurred by him in providing the asset,

the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal, and any expenditure wholly and exclusively incurred by him in establishing, preserving or defending his title to, or to a right over, the asset,

the incidental costs to him of making the disposal.”

“[34] In our judgment, the short answer to this point is that there is no ‘special statutory context’ (to use Lord Sumption’s expression) which suggests that the phrase should be given any other than its ordinary and natural meaning of connoting a relationship of agency. The parties took us through various hypothetical examples involving A, an owner of land, and B a person prepared to provide some kind of gratuitous benefit to A. In scenario (i) B gives A £1,000 and A spends that on building works on the land. In scenario (ii) A enters into a contract with a builder for works to be performed on A’s land but B gratuitously pays the builder £1,000 of the price of those works. In scenario (iii) B enters into a contract with a builder and pays the builder £1,000 in return for the builder agreeing to perform building works on A’s land. Those three scenarios were, Mr Firth argued, economically indistinguishable and it would make no sense for the expenditure to count in scenario (i) but not in scenarios (ii) or (iii).

[35] However, in our judgment, the discussion of these scenarios does not establish any ‘special statutory context’. At most they establish that economically similar transactions might be taxed differently if the phrase ‘by him or on his behalf’ is held to be limited to situations involving agency. However, that is not a particularly startling outcome. Economically similar transactions are not infrequently taxed in different ways. More generally, scenarios (i)–(iii) are products of the ingenuity of lawyers litigating a particular issue arising out of s 38(1)(b). They do not address the more ‘mainstream’ situation where a person owning an asset incurs expenditure either directly, or through an agent, on the improving of that asset and so are less capable of establishing a ‘special statutory context’ that displaces the ordinary and natural meaning of the words.