Major v. Brodie & Anor, [1998] BTC 141 (Ch. D)

The taxpayers used borrowed money to make a contribution of capital to a partnership (Skeldon Estates) which was a member of a second partnership (Murdoch) which carried on a farming business utilizing farms owned by Skeldon Estate and the second partner of Murdoch.

The Inspector of Taxes failed in a submission that the taxpayers were not eligible for an interest deduction under s. 362(1) of the Income Incorporations Taxes Act 1988 on the ground that the borrowed money contributed to Skeldon Estate was not "used wholly for the purposes of the trade ... carried on by the partnership [i.e., Skeldon Estate]" but, rather, was used for the purposes of the trade carried on by Murdoch. Park J. held (at p. 152) that as "a trade carried on by a partnership is a trade carried on by its members and by each of them" and the borrowed money was "used wholly for the purposes of the trade carried on by W. Murdoch & Son", it followed "that the money [was] thereby used wholly for the purposes of the trade carried on by the partners in W. Murdoch & Son." He went on to indicate (at p. 153) that under English law, where A and B are the partners in partnership X, and X and another person (C) form another partnership, partnership Y, A and B are considered to be partners in partnership Y in their capacity as members of partnership X.

The taxpayers used borrowed money to make a contribution of capital to a partnership (Skeldon Estates) which was a member of a second partnership (Murdoch) which carried on a farming business utilizing farms owned by Skeldon Estate and the second partner of Murdoch.

The Inspector of Taxes failed in a submission that the taxpayers were not eligible for an interest deduction under s. 362(1) of the Income Incorporations Taxes Act 1988 on the ground that the borrowed money contributed to Skeldon Estate was not "used wholly for the purposes of the trade ... carried on by the partnership [i.e., Skeldon Estate]" but, rather, was used for the purposes of the trade carried on by Murdoch. Park J. held (at p. 152) that as "a trade carried on by a partnership is a trade carried on by its members and by each of them" and the borrowed money was "used wholly for the purposes of the trade carried on by W. Murdoch & Son", it followed "that the money [was] thereby used wholly for the purposes of the trade carried on by the partners in W. Murdoch & Son." He went on to indicate (at p. 153) that under English law, where A and B are the partners in partnership X, and X and another person (C) form another partnership, partnership Y, A and B are considered to be partners in partnership Y in their capacity as members of partnership X.

The taxpayers used borrowed money to make a contribution of capital to a partnership (Skeldon Estates) which was a member of a second partnership (Murdoch) which carried on a farming business utilizing farms owned by Skeldon Estate and the second partner of Murdoch.

The Inspector of Taxes failed in a submission that the taxpayers were not eligible for an interest deduction under s. 362(1) of the Income Incorporations Taxes Act 1988 on the ground that the borrowed money contributed to Skeldon Estate was not "used wholly for the purposes of the trade ... carried on by the partnership [i.e., Skeldon Estate]" but, rather, was used for the purposes of the trade carried on by Murdoch. Park J. held (at p. 152) that as "a trade carried on by a partnership is a trade carried on by its members and by each of them" and the borrowed money was "used wholly for the purposes of the trade carried on by W. Murdoch & Son", it followed "that the money [was] thereby used wholly for the purposes of the trade carried on by the partners in W. Murdoch & Son." He went on to indicate (at p. 153) that under English law, where A and B are the partners in partnership X, and X and another person (C) form another partnership, partnership Y, A and B are considered to be partners in partnership Y in their capacity as members of partnership X.

Before rejecting a submission by the Inspector of Taxes that the position of the taxpayers, as members of a Scottish partnership, should be the same as if they were members of an English partnership, Park J. stated (at p. 154) that:

"... If the tax liability of an English taxpayer depends on the nature of some entity or structure which is not constituted under English law, the matter is determined by reference to what the commissioner finds to be the actual legal characteristics of that entity or structure under its own governing law."