Marren v Ingles [1980] STC 500 (HL)

Facts

  • Mr. Marren agreed to sell shares under a contract that was conditional upon the fulfillment of certain requirements.
  • The Inland Revenue contended that the sale occurred at the date of the initial agreement, even though conditions remained outstanding.
  • The dispute centered on the correct moment for Capital Gains Tax (CGT) to be assessed and the amount upon which it should be calculated.
  • Section 20(1) of the Capital Gains Tax Act 1965 was at the core of the legal analysis.
  • The case addressed practical situations where assets may change in value between a conditional contract and satisfaction of its conditions.

Issues

  1. When should a sale under a conditional contract be treated as occurring for CGT purposes: at the date of the initial agreement or when the contract becomes unconditional?
  2. How should proceeds be calculated for CGT when there is a change in asset value between the conditional contract and the fulfillment of its conditions?
  3. What distinguishes a conditional contract from an unconditional contract with later price adjustments for CGT purposes?

Decision

  • The House of Lords held that, for CGT purposes, the sale occurs when the contract becomes unconditional.
  • Proceeds for CGT must be fixed at the time the contract becomes unconditional, reflecting the asset's value at that date.
  • A conditional contract does not trigger a CGT event until all its conditions are satisfied.
  • The sale date under section 20(1) of the Capital Gains Tax Act 1965 refers to a final, unconditional agreement rather than a contract still subject to conditions.
  • The practical effect is that any change in asset value before the contract becomes unconditional will be reflected in the proceeds for CGT.

Legal Principles

  • Under section 20(1) of the Capital Gains Tax Act 1965, the date of sale for CGT is the date when a contract becomes final and unconditional.
  • Conditional contracts for the sale of assets do not create a CGT event until all prerequisites are met.
  • The distinction between conditional and unconditional contracts is essential; a contract dependent on satisfaction of conditions is not effective for CGT until those conditions are fulfilled.
  • A contract that merely allows future price adjustments without making the agreement dependent on a condition does not delay the CGT event.

Conclusion

The House of Lords in Marren v Ingles established that, for Capital Gains Tax purposes, a sale under a conditional contract is deemed to occur when the contract becomes unconditional, and the proceeds must be determined at that time, as clarified under section 20(1) of the Capital Gains Tax Act 1965. This decision provides certainty and predictability in the timing and calculation of gains for CGT arising from conditional contracts.

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