Where a restraint order was made under s.77 Criminal Justice Act 1988 in relation to a defendant charged with tax fraud and a receiver was appointed to realise property to satisfy a confiscation order, the receiver was not assessable to capital gains tax or income tax in relation to the realisations and the defendant's tax liability was not an expense of the receiver to be discharged out of the assets.Application to the court by a receiver ('SD') appointed under s.77 Criminal Justice Act 1988 for directions regarding whether she was assessable to capital gains tax or income tax in respect of realisations in the course of the receivership, and whether any tax liability was payable as an expense of the receivership. In 1994 the defendant ('P') was charged with a tax fraud. The Inland Revenue, in anticipation of the making of a confiscation order in the event of P's conviction, applied for a restraint order under s.77 of the 1988 Act and SD was appointed as receiver of the property and affairs of companies controlled by P. In 1998, after P was convicted, a confiscation order was made in the sum of ?2,100,000 and SD, in exercise of the power of sale conferred on her, sold the receivership assets to satisfy the confiscation order. SD applied for discharge of the restraint order and, before the order was discharged, for directions as to whether she was assessable to capital gains tax and/or income tax in respect of realisations of or dealings with the receivership assets. The issues were: (i) whether SD incurred any personal liability to pay capital gains tax or income tax; and (ii) whether P's tax liability was an "expense" of SD under s.81(5) of the 1988 Act which was to be paid and discharged out of the proceeds of realisation.HELD: (1) SD was not assessable to capital gains tax or income tax. Common sense required that, where there was a realisation by SD, any tax liability should remain that of the defendant alone and the receiver should not be assessable. Parliament could not have intended to make the receiver personally liable or in any way have wished the incidence of tax to be different or more beneficial to the offender if he failed or refused to realise his assets to satisfy a confiscation order so that a receiver had to be appointed to realise the assets. That conclusion was not affected by ss.75 and 77 Taxes Management Act 1970, which provided that a court-appointed receiver was to be assessable in like manner as if the property were not under the direction and control of the court. Those sections proceeded on the erroneous assumption that an out of court receiver was assessable, when in the ordinary case the receiver was the agent of the company or debenture holder and was not personally liable (IRC v Thompson (1937) 1 KB 290 doubted). (2) P's tax liabilities were not an expense of SD within ss.81(5) and 88(2) of the 1988 Act. There was no provision in the statute contemplating any payment of tax and no provision enabling any such payment to be made save in so far as it might be implicit in the provision in s.81(5) for payment of the receiver's remuneration and expenses. In the context "expense" did not include discharge of P's tax liability. P's liability continued unaffected by the receivership. Section 82(6) of the 1988 Act made it plain that no account was to be taken of any obligation of P that conflicted with the obligation to satisfy the confiscation order.Judgment accordingly.

[2003] EWHC 113 (Admin)

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