Borchert v Revenue & Customs [2006] UKSPC SPC00545 (08 June 2006)

SPC00545 
INCOME TAX — claim by appellant for relief on monies paid to his trustee in bankruptcy to recover benefit of annuities trustee had taken over on bankruptcy but was prepared to release on discharge — alternatively claim for entitlement to relief on interest paid on loan obtained by appellant to purchase benefit of annuities — appeal dismissed 

THE SPECIAL COMMISSIONERS

MR A C BORCHERT 	Appellant
- and -JOHN CORMACK (THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS) 	Respondents

Special Commissioner: David Demack

Sitting in public in Manchester on 22 May 2006 The Appellant appeared in person Mr John Cormack, Inspector of Taxes for Her Majesty’s Revenue & Customs
© CROWN COPYRIGHT 2006

DECISION

1.	In 1995 the Appellant, Mr Andrew Borchert, was made bankrupt. Among his assets were certain retirement annuity policies, the premiums on which had qualified for income tax relief. Following the decision of the High Court in Re Landau (a bankrupt), Pointer v Landau and another [1997] 3 AII ER 322, in which Ferris J held that a retirement annuity policy effected by a bankrupt prior to his bankruptcy formed part of his estate and therefore vested automatically in the trustee in bankruptcy on his appointment by virtue of s.306 of the Insolvency Act 1986, Mr Borchert’s trustee took over the relevant policies. Mr Borchert was discharged from bankruptcy in 1998. Subsequently, he arranged to pay his trustee £24,000 for the benefit of the policies, i.e. the right to receive future income from them. To enable him to do so, Mr Borchert had to borrow £25,800, including an arrangement fee of £1,800. 
2.	In his self assessment income tax return for the year 2003-04, Mr Borchert claimed tax relief on the money he had borrowed on the basis that he had made a payment into a personal pension scheme which attracted tax relief under section 639 of the Income and Corporation Taxes Act 1988 (“the Act”). 
3.	As Mr John Cormack, who appeared for HM Revenue & Customs, observed, such a payment would attract relief only if it were made for “approved personal pension arrangements” (see section 639(1)) of the Act). Mr Cormack went on to explain that “approved” in this context was defined in section 630(1)(b) of the Act and, “in relation to arrangements”, means: 
“(i) made in accordance with a scheme which is for the time being, and was when the arrangements were made, an approved scheme, or 
(ii) made in accordance with a scheme which is for the time being an approved, converted scheme, but which was, when the arrangements were made, an approved retirement benefits scheme.” 
4.	He added that section 630(1)(a) confirmed that “approved” “in relation to a scheme (other than an approved retirements benefit scheme) means approved by the Board [of Inland Revenue] under [Chapter IV of the Act], and approved retirement benefits scheme means a retirement benefits scheme approved under Chapter 1 of this Part”. 
5.	Mr Cormack submitted, quite correctly, that no personal pension arrangements had been approved by the Board in respect of Mr Borchert; and, since tax relief was available only where the arrangements had been approved by the Board and the contributions met the relevant conditions in the Act, Mr Borchert was not entitled to relief on the payment made to his trustee. Mr Borchert accepted that he did not meet those requirements so that he was not entitled to the relief he had claimed. 
6.	Alternatively, Mr Borchert claimed that he was entitled to tax relief on the interest he had paid on the loan. I invited him to identify the specific relieving provision or provisions under which he had made his claim, but he was unable to do so. 
7.	Only four categories of loan qualify for loan interest relief under the Act. They are: 
(i)	loans to buy machinery or plant (section 359); 
(ii)	loans to buy an interest in a close company (section 360); 
(iii)	loans to buy an interest in a co-operative or employee controlled company (section 361); 
(iv)	loans to buy an interest in a partnership (section 362); and 
(v)	loans to pay inheritance tax (section 364). 
8.	As none of the above categories of loan are in point in the appeal, it follows that Mr Borchert is not entitled to tax relief on the interest he has paid on the loan in question. 
9.	I dismiss the appeal in its entirety. 

DAVID DEMACK 
SPECIAL COMMISSIONER
Release Date: 8 June 2006

SC/3018/2006