© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
D3. Certainty and finality
RULE OF LAW
- A constitutional principle
"
"This Act does not adversely affect—
(a) the existing constitutional principle of the rule of law, or
(b) the Lord Chancellor's existing constitutional role in relation to that principle." (Constitutional Reform Act 2005, s.1)
- Prohibits arbitrary use of power
"[51] ... The constitutional principle of the rule of law underpins the protection of legitimate expectations as it prohibits the arbitrary use of power by public authorities..." (Rainbow Insurance Co Ltd v. Financial Services Commission [2015] UKPC 15, Lord Hodge)
- Certainty of outcome and consistentcy of treatment
"[21] Furthermore, it is important not to undermine the role of precedent in the common law. Even though it appears clear that both the reasoning and conclusion on the point at issue in Cookson v Knowles and Graham v Dodds were flawed, at least in the light of current practice, it is important that litigants and their advisers know, as surely as possible, what the law is. Particularly at a time when the cost of litigating can be very substantial, certainty and consistency are very precious commodities in the law. If it is too easy for lower courts to depart from the reasoning of more senior courts, then certainty of outcome and consistency of treatment will be diminished, which would be detrimental to the rule of law." (Knauer v. MoJ [2016] UKSC 9)
LEGAL CERTAINTY
- Elementary justice demands that the rules by which the citizen is to be bound should be ascertainable by him
"[76] One aspect of the rule of law - indeed, the first characteristic identified by Lord Bingham in The Rule of Law (2010), p 37 - is that “the law must be accessible and so far as possible intelligible, clear and predictable”. That principle is fundamental to liberal democracies. As Lord Diplock observed in Fothergill v Monarch Airlines Ltd [1981] AC 251, 279:
“Elementary justice or, to use the concept often cited by the European Court [of Justice], the need for legal certainty demands that the rules by which the citizen is to be bound should be ascertainable by him (or, more realistically, by a competent lawyer advising him) by reference to identifiable sources that are publicly accessible.”
The same principle applies under the European Convention on Human Rights. As the European Court of Human Rights held in Sunday Times v United Kingdom (1979) 2 EHRR 245, para 49, when considering the concept of “law” as employed in the Convention:
“First, the law must be adequately accessible: the citizen must be able to have an indication that is adequate in the circumstances of the legal rules applicable to a given case. Secondly, a norm cannot be regarded as a ‘law’ unless it is formulated with sufficient precision to enable the citizen to regulate his conduct: he must be able - if need be with appropriate advice - to foresee, to a degree that is reasonable in the circumstances, the consequences which a given action may entail.” (re UNCRC (Incorporation) (Scotland) Bill [2021] UKSC 42)
"The constitutional function performed by courts of justice as interpreters of the written law laid down in Acts of Parliament is often described as ascertaining 'the intention of Parliament'; but what this metaphor, though convenient, omits to take into account is that the court, when acting in its interpretative role, as well as when it is engaged in reviewing the legality of administrative action, is doing so as mediator between the state in the exercise of its legislative power and the private citizen for whom the law made by Parliament constitutes a rule binding on him and enforceable by the executive power of the state. Elementary justice or, to use the concept often cited by the European court, the need for legal certainty, demands that the rules by which the citizen is to be bound should be ascertainable by him (or, more realistically, by a competent lawyer advising him) by reference to identifiable sources that are publicly accessible. The source to which Parliament must have intended the citizen to refer is the language of the Act itself. These are the words which Parliament has itself approved as accurately expressing its intentions. If the meaning of those words is clear and unambiguous and does not lead to a result that is manifestly absurd or unreasonable, it would be a confidence trick by Parliament and destructive of all legal certainty if the private citizen could not rely on that meaning but was required to search through all that had happened before and in the course of the legislative process in order to see whether there was anything to be found from which it could be inferred that Parliament's real intention had not been accurately expressed by the actual words that Parliament had adopted to communicate it to those affected by the legislation." (Fothergill v. Monarch Airlines Ltd [1980] 2 All ER 696)
- Predictability, certainty and fairness are the bedrock of tax law
"[1] The principles of predictability, certainty, and fairness and respect for the right of taxpayers to legitimate tax minimization are the bedrock of tax law. In the context of international tax treaties, respect for negotiated bargains between contracting states is fundamental to ensure tax certainty and predictability and to uphold the principle of pacta sunt servanda, pursuant to which parties to a treaty must keep their sides of the bargain." (Alta Energy Luxembourg SARL v. R (2021) 24 ITLR 346, Supreme Court of Canada)
- Law should be clear enough to enable individuals to regulate their conduct (taking advice if necessary)
"[93] This submission raises an important point. When framing restrictions on freedom of expression, precision matters. Especially in relation to political matters or questions of public interest, members of the public should not be discouraged from exercising their freedom of expression by laws which are vague or which they cannot be expected to understand.
[94] However, the jurisprudence of the European court recognises that "in any system of law, including criminal law, however clearly drafted a legal provision may be, there will inevitably be a need for interpretation by the courts, whose judicial function is precisely to elucidate obscure points and dispel any doubts which may remain regarding the interpretation of legislation": Terentyev v Russia (Application no 10692/09) judgment of 28 August 2018, unreported, para 56. Reference might also be made to the judgment in Alekhina v Russia (Application no 38004/12) (2018) 68 EHRR 14, para 254:
"... the consequences which a given action may entail ... need not be foreseeable with absolute certainty. Whilst certainty is desirable, it may bring in its train excessive rigidity, and the law must be able to keep pace with changing circumstances. Accordingly, many laws are inevitably couched in terms which, to a greater or lesser extent, are vague, and whose interpretation and application are questions of practice."
The same point has also been made by this court: see, for example, R v Golds [2016] UKSC 61; [2016] 1 WLR 5231, para 37.
[95] In the context of counter-terrorism legislation, in particular, the European court said in Internationale Humanitäre Hilfsorganisation eV v Germany (Application no 11214/19) judgment of 10 October 2023, unreported, para 67:
"It is, however, not possible to attain absolute rigidity in the framing of laws, and many of them are inevitably couched in terms which, to a greater or lesser extent, are vague. The level of precision required of domestic legislation depends to a considerable degree on the content of the instrument in question and the field it is designed to cover".
[96] Although the language used to define a legal rule can never achieve absolute precision, the terms of section 12(1A) are clear enough to enable individuals, if necessary after taking legal advice, to regulate their conduct. There is nothing obscure about the meaning of the words "expresses an opinion or belief that is supportive of a proscribed organisation", or about the meaning of the words "reckless as to whether a person to whom the expression is directed will be encouraged to support a proscribed organisation". As explained at paras 73 and 74 above, whether an organisation is proscribed can be easily ascertained. The elements of the offence have been analysed in detail and are summarised at para 82 above. They are sufficiently clear to meet the standard of being "prescribed by law". They will be explained to a jury in the legal directions given to them by the trial judge. If the jury require any additional guidance in the circumstances of a particular case, it is the function of the trial judge to provide it." (R v. ABJ [2026] UKSC 9)
- Law cannot be left in an unclear state just to scare people
"[75] During the hearing before this court, Mr Ewart struggled to express what was needed in order for a shareholder to become a transferor. At some points he seemed to be suggesting that the fact that the shareholders at a general meeting usually have the power to remove the board of directors was enough for them all to be transferors, by reason of them not exercising that power when the directors cause the company to transfer an asset. At other times he seemed to be suggesting that it was necessary for the shareholders to have been seen to get together, or to act in concert (though it was not clear what he meant by that) before they could be regarded as quasi-transferors. A myriad of different scenarios were suggested. What happens to a holder of, say, 30% of the shares who, knowing that all the other shareholders intend to vote to transfer the company’s assets overseas, cannily votes against the motion, or abstains, or cries off attending the meeting? Does he or she thereby avoid the charge to tax whilst still having the power to enjoy the assets transferred pursuant to the motion passed by the other shareholders so that it is only the voting shareholders who are caught by the provision?
[76] At some points [Counsel for HMRC] seemed to be suggesting that this degree of uncertainty about when and to whom the charge applied was a positive virtue of the drafting. The provision was, he said, designed to discourage people from moving assets abroad with a tax avoidance purpose. The problem with having a bright line is that people devise a way round it. The penal provision works better to achieve its aim if taxpayers are unable to know whether they would be caught or not. HMRC could then assess them to tax on the income of the overseas person, leaving the taxpayer to try to convince HMRC or the tribunal on appeal that they were not transferors. That is, in my judgment, an improper argument for HMRC to run. It has a flavour of the same unconstitutional approach to the enforcement of these provisions that was so strongly deprecated in Vestey. I agree with [the taxpayer's] submission in response when he said that the law cannot be left in some unclear state “just to scare people”." (HMRC v. Fisher [2023] UKSC 44)
- Considerable merit of simplicity and certainty for tax relief (BPR)
"[23] First, the approach for which Mr Massey contends, has the very considerable merit in a taxing statute of simplicity and certainty in the application of s. 104. If s. 104(1) is interpreted as Mr Massey submits, citizens can know clearly when tax may be charged and when BPR is to be available, and can plan their affairs accordingly. It appears that the draftsman has aimed for a reasonable degree of simplicity in the operation of the IHTA, as is indicated by the basic application of the loss to donor principle in its principal operative provisions (in particular, the use of the simple test for a transfer of value and its amount in s. 3(1) and s. 5 by reference to the value of the transferor's estate before and immediately after a disposition), by the use of the general concept of a "business" in s. 105(1)(a) as a form of property distinct from its fluctuating component assets and the incorporation of s. 106 to avoid the necessity for detailed accounting in relation to such component assets in determining whether BPR should be available or not. Similarly, s. 110 gives a straightforward test for the value of a business at any given point in time; and in my view the natural reading of the rather convoluted formula in s. 104(1) (whether value transferred by a transfer of value "is attributable to the value of any relevant business property" – rather than simply saying "is attributable to any relevant business property") involves, in the case of a business, direct cross-reference to the simple test in s. 110 to determine whether the value transferred is attributable to the value of the business. The test in s. 110 can readily be applied before and immediately after a disposition, to give a change in value attributable to a business which works in harmony with the basic test in s. 3(1) and which accords with, and closely resembles in the special business context, the general basic test in s. 5 to value a person's estate for the purposes of application of s. 3(1)." (HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J)
- Rejection of interpretation that would give rise to tax charges without taxpayer knowing
"It is important to bear in mind that the question whether the equipment "belongs" to the taxpayer company does not fall to be answered once and for all at one particular date. The question has to be answered in relation to each chargeable period; moreover, in calculating the disposal value which has to be brought into account for the purpose of the balancing charge, it is necessary to determine whether and when the equipment has ceased "to belong to" the taxpayer: section 44(5)(c). Therefore in construing the word "belongs" as used in section 44 one would expect, first, that the question whether equipment belongs or has ceased to belong to the taxpayer would be capable of a ready answer and, second, that the taxpayer could control, or at least be aware of, circumstances which caused the property to cease to belong to him. Yet if the taxpayer companies' submission is correct, equipment which belongs to them could at any time "cease to belong," thereby giving rise to a balancing charge, without the taxpayer companies knowing anything about it. Vinelott J. [1995] Ch. 90held (in my view rightly) that even if otherwise the equipment belonged to the local authority, as soon as it granted a tenancy of a council house the equipment in the house could not thereafter be said to belong to the taxpayer company so long as the tenancy continued. The tenant would be a purchaser for value of a legal estate without notice and would take free of the contractual and equitable rights of the taxpayer company under the master lease. The right to enter the house and remove the central heating would not be exercisable against the tenant. Similarly, a sale or mortgage of the house or other property to which equipment was affixed would in the ordinary case leave the taxpayer company without any rights over such equipment. Yet the grant of such tenancy or the sale or charge by the local authority would normally take place without the knowledge or consent of the taxpayer company. True, such tenancy, sale or charge would constitute a breach of clause 2.8 of the master lease but that would make no difference to the fact that the taxpayer company would enjoy no rights of any kind against the person acquiring the fixtures. In my judgment, Parliament cannot have intended the word "belongs" to produce such a result." (Melluish v. BMI [1996] AC 454 at 476 - 477, Lord Browne-Wilkinson)
- Partnership tax regime requires certainty as to who is responsible for paying tax
""[78] ... The regime requires certainty as to who has responsibility for payment of tax in relation to profits and losses of a partnership, and section 850 provides it. It states a simple rule which minimises the difficulties of application and the dangers of capriciousness (and scope for avoidance) in its operation which might otherwise arise.
[79] In order for the "look-through" basis of assessment to be workable, in accordance with this general scheme, in any relevant accounting period, it is necessary for the rights of the individual partner to share in the profits or losses of the trade in that period to be known at the time of the trading in that period. Taxation of the individual partners is by reference to the profits and losses of the partnership actually achieved in the relevant period, not by reference to the assets of the partnership, nor by reference to what an individual partner ultimately receives from the partnership at a later point in time. So it is the relationship of the individual partner to the profits and losses of the partnership in that period which has to be determined under this regime." (HMRC v. HFFX LLP [2026] UKSC 17)
- Complex and uncertain evaluative exercise rejected
"[24] By contrast, the approach proposed by HMRC would involve a more complex and uncertain evaluative exercise to be undertaken, to decide whether to attribute the value transferred to a business or to some property used in the business. I do not think it is plausible to suppose that Parliament and the draftsman intended that there should be this additional layer of complication and uncertainty (requiring application of what is in effect a sort of metaphysical test of attribution) in the operation of the IHTA." (HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J)
- Caution against approaches that would undermine certainty of taxation of well-established, common transactions
"[103] It is of course right that HMRC should consider whether arrangements implemented before these changes fail under the pre-existing law. But, however proper HMRC's motives are, caution is required to avoid a risk of over-reach, with consequential risks to legal certainty. A close inspection of the trees can risk a failure to distinguish the overall wood.
...
[105] That in turn has led HMRC to argue, in effect, that the full £800,000 is taxable as earnings simply because it was paid via a third party, even where it would not have been so taxable if it had been lent directly to Mr Currell, and indeed in circumstances where the more obvious analysis might be that, viewed realistically, the "prewired" Loan should be treated as made directly by the Company. It has also led HMRC to argue that a loan can be earnings merely because the borrower has practical control of its repayment. As [the taxpayer] fairly pointed out, those propositions are both novel and unsupported by authority. If either gained traction it would cause considerable uncertainty.
[106] The potential consequences of HMRC's arguments are not difficult to see. For example, owner-managed companies (which, it should be borne in mind, must self-assess their tax liabilities) would have to consider whether the longstanding practice of allowing directors to draw on loan accounts in fact gives rise to immediate PAYE and NIC obligations. Groups that fund service companies that employ staff would have to consider whether those funding payments also result in an immediate earnings charge when they are used to confer benefits such as season-ticket loans.
[107] These are not unrealistic points. As [the taxpayer's] submissions skilfully demonstrated, they flow directly from HMRC's arguments in this case, and [HMRC] did not provide a persuasive answer to them. As I have explained however, those arguments are wrong." (HMRC v. Currell [2026] EWCA Civ 445, Falk LJ)
- Sometimes it is more important that the law is certain and predictable than that it is perfect
"[156] In these circumstances English law is indeed settled. Although it would be open to the Supreme Court to conclude that the improper exercise of a power is voidable rather than void, that would involve jettisoning authority going back over 300 years in an area of law which has traditionally attached importance to certainty and predictability. Sometimes it is more important that the law should be certain and predictable than that it should be perfect." (FS Capital Limited v. Adams [2025] EWCA Civ 53, Males LJ)
- Double tax treaties must have been intended to be expressed in precise terms so that it is clear who is subject to tax
"[93] RBC accepted that the concept of the "right to work" in Article 6(2) of the UK/Canada Convention is an autonomous concept. It is clear that the language of an international treaty must not be interpreted by technical rules of English law: see per Lord Diplock in Fothergill v Monarch Airlines Ltd [1981] AC 251, 281H–282B. However, the UK/Canada Convention is an instrument firmly in the taxing realm. The Contracting States must have agreed its terms on the understanding that those terms would then need to be reflected in their respective domestic laws and would impose tax charges which must be expressed, so far as possible, in precise terms so that it is reasonably clear who is subject to the taxing charge and who is not." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
- Devolved legislature not entitled to enact legislation outside its competence on the basis that it will be "read" compatibly with competence
"[77] This objective is not always fully attained in practice. But what is striking in the present case is that there has been no attempt to draft section 6 of the Bill in such a way as to provide a clear and accessible statement of the law. On the contrary, there has been a decision to draft and enact a provision whose plain meaning does not accurately represent the law, and to rely on the courts, applying section 101(2) of the Scotland Act, subsequently to impose a variety of qualifications upon the provision, on a case by case basis, so as to give it a different effect which is lawful. For the reasons which I have explained in paras 69-76 above, that cannot be how Parliament intended section 101(2) to be interpreted and applied.
...
[80] For all the foregoing reasons, the answer to question 4 is “Yes”. Section 6 of the Bill is outside the legislative competence of the Scottish Parliament, because it “relates to” reserved matters, contrary to section 29(2)(b) of the Scotland Act, would modify section 28(7), contrary to section 29(2)(c), and would modify the law on reserved matters, contrary to section 29(2)(c)." (re UNCRC (Incorporation) (Scotland) Bill [2021] UKSC 42)
Limits on legal certainty
- Interpretation that makes operation of tax depend on acts of others not a sufficient objection
"[53] Mr Henderson submitted that the Appellant's approach would lead to unacceptable uncertainty. An SDLT return must be filed shortly after a transaction is undertaken. The taxpayer could not know at that stage whether a group relief claim by the vendor would or would not succeed, or whether it might be withdrawn.
[54] I am unpersuaded by this. Like other tax returns, SDLT returns are not made with a guarantee of their accuracy; they are made on the basis of a declaration that the return is "to the best of [the purchaser's] knowledge, correct and complete" (paragraph 1(1) of Schedule 10 FA 2003). There is also provision for them to be amended within 12 months of the filing date (paragraph 6 of Schedule 10). Even on HMRC's approach the company making the return must ascertain whether the vendor either has made or intends to make a group relief claim, a claim which would not necessarily be filed before the company makes its own return and indeed might be made by way of amendment to the vendor's own return at a later date. The fact that, on the Appellant's approach, the company needs additional information to ascertain whether the claim made by the vendor is one that will succeed, or indeed is withdrawn, is no different to many other situations where a group member's own tax position is affected by that of other group companies. (There are numerous example of this, but an analogous one that I mentioned at the hearing is the fact that returns of chargeable gains will need accurately to take account of the tax history of assets acquired from other group members, in particular whether and what reliefs have successfully been enjoyed – including via claims that may be made at a later date – because that may fundamentally affect the tax treatment of the sale of those assets.)" (The Tower One St George Wharf Limited v. HMRC [2025] EWCA Civ 1588, Falk LJ)
- Value of legal certainty does not extend to construing legislation in a way that allows tax avoidance scheme to succeed
"[60] As well as adopting the reasoning of the Court of Appeal, Mr Prosser QC in his well-focused submissions for the defendant companies on these appeals argued that to interpret section 65(1) of the 1988 Act as capable of denoting someone other than the person with the immediate legal right to possession of the property would make the test uncertain. It would, he submitted, be inconsistent with the intention reasonably to be attributed to Parliament that ratepayers and rating authorities alike should be able to determine without difficulty who is liable under section 45. There is force in this argument if the test is formulated, as it was by the appellants in their written case, as one of “genuine and real commercial entitlement as owner”. That is an amorphous formulation. But a recognition that section 65(1) is speaking of an entitlement to possession which vests in the person concerned a real and practical ability either to occupy the property or to put someone else into occupation of it, is a purposive interpretation which achieves some coherence between the language of the statute and its purpose in identifying the “owner” of an unoccupied non-domestic property as the person who is liable for business rates.
[61] It may be that other factual situations may demonstrate that this test needs some further adjustment. For example the letting of unoccupied business property by a parent company to a wholly owned and controlled subsidiary would not of itself cause the subsidiary to fail to satisfy the ownership test merely because the management of the affairs of the subsidiary (including whether to bring the premises back into occupation) rested with the parent’s board. We would, however, reject the criticism that the test is insufficiently certain. In any ordinary case the test will easily be satisfied by identifying the person who is entitled to possession as matter of the law of real property. The fact that the law of real property may not prove a reliable guide in an unusual case of the present kind is not in our view an objection to our preferred interpretation. The value of legal certainty does not extend to construing legislation in a way which will guarantee the effectiveness of transactions undertaken solely to avoid the liability which the legislation seeks to impose." (Rossendale BC v. Hurstwood [2021] UKSC 16)
- Uncertainty as to the Court's response to a tax avoidance scheme something that participants in such schemes have to accept
"[15] Mr Goldberg submitted that a factual inquiry into what constituted the relevant transaction for the purposes of paragraph 6(1) would give rise to uncertainty. He was disposed to accept that if the representative of Carrerras had handed the share certificates over the desk in exchange for the debenture and the representative of Caribbean had then handed it back in exchange for a cheque, it would be hard to say that the relevant transaction should not be characterised as an exchange of shares for money. But what if the debenture had been redeemed a year later? Why should a fortnight be insufficient to separate the exchange from the redemption?
[16] One answer is that it is plain from the terms of the debenture and the timetable that the redemption was not merely contemplated (the redemption of any debenture may be said to be contemplated) but intended by the parties as an integral part of the transaction, separated from the exchange by as short a time as was thought to be decent in the circumstances. The absence of security and interest reinforces this inference. No other explanation has been offered. In any case, their Lordships think that it is inherent in the process of construction that one will have to decide as a question of fact whether a given act was or was not a part of the transaction contemplated by the statute. In practice, any uncertainty is likely to be confined to transactions into which steps have been inserted without any commercial purpose. Such uncertainty is something which the architects of such schemes have to accept."(Carreras Group Limited v. The Stamp Commissioner [2004] UKPC 16, Lord Hoffmann)
Penal legislation
- Principle against doubtful penalisation
"[58] While Mr Fitzpatrick denied that the principle against doubtful penalisation had any relevance in this case because, on his submission, the meaning of the statute was clear in permitting an RRO against a superior landlord, he did not dispute Mr Morris’ submission that an RRO is a relevant penalty for the purposes of the principle. And it has been held that the principle against doubtful penalisation extends to the imposition of civil liability linked to a crime (see Ess Production Ltd (in administration) v Sully [2005] EWCA Civ 554, [2005] 2 BCLC 547, para 78). In our view, although unnecessary to rely on it, the principle against doubtful penalisation is a further factor supporting the straightforward interpretation set out above." (Rakusen v. Jepsen [2023] UKSC 9)
"[106] Both parties referred briefly to the rule against doubtful penalisation with Mr Sherry submitting that its application should lead us to adopt a narrower rather than a wider interpretation of the words “due to” if more than one interpretation were possible; see Agassi v Robertson [2004] EWCA Civ 1518 at [30] per Buxton LJ. Ms Choudhury argued that the rule did not apply because the submission on behalf of Delphi was that at its highest, “but for” causation was a tenable construction.
[107] It is clear that the rule, which is one of statutory interpretation, applies to civil penalties: ESS Production Ltd (In Administration) v Sully [2005] EWCA Civ 554, per Arden LJ at [78]. In R(OAO the Good Law Project) v Electoral Commission & Ors [2018] EWHC 2414 (Admin) at [34] (Leggatt LJ and Green J) the rule was summarised as follows: “If there is a reasonable interpretation which will avoid the penalty in any particular case, we must adopt that construction. If there are two reasonable constructions, we must give the more lenient one. That is the settled rule for the construction of penal sections” (Tuck & Sons v Priester) (1887) 19 QBD 629).
[108] We consider that our interpretation, following Mainpay CA, of the phrase “due to” would be more consistent with the application of this rule of interpretation than the wider “attribution/mode of behaviour” meaning adopted by the FTT." (Delphi Derivatives Limited v. HMRC [2026] UKUT 21 (TC), Marcus Smith J and Judge Brannan)
"[32] We consider that the question we are addressing also engages the principle against doubtful penalisation. The essence of this principle is sometimes expressed in the proposition that no one should suffer detriment by the application of a doubtful law. In this context, “doubtful is the adjective to be applied to a construction which, in the context of a competing construction or constructions, would if preferred, create an ex post facto legal rule. This principle is a fortiori if the doubtful construction also inflicts a detriment, that is to say –
“If it takes away or impairs a vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability, in regard to events already passed.” (Yew v Kenderaan [1983] 1 AC 553, per Lord Brightman at 558.)
The basic concept of fairness also has a role in the determination of questions of this kind. Per Staughton LJ in Secretary of State for Social Security v Tunnicliffe [1991] 2 All ER 712, at 724:
“In my judgment the true principle is that Parliament is presumed not to have intended to alter the law applicable to past events and transactions in a manner which is unfair to those concerned in them, unless a contrary intention appears.”
[33] The presumption against retrospective effect, expounded above, is prima facie applicable to rule 9 of the 2014 Rules. Notwithstanding, there is a competing principle to be considered. We are mindful that there is some authority for the proposition that legislative changes in procedural provisions apply to pending as well as future proceedings. However, this is a qualified, and not an absolute, principle. In R v Makanjuola [1995] 3 All ER 730, Lord Taylor CJ referred to “the general presumption ….. that a statutory change in procedure applies to pending as well as future proceedings” (at page 732E). However, this is but a general principle, or rebuttable presumption, which must yield in appropriate cases, particularly (per Bennion, page 269) where its application would infringe the principle that a person should not be penalised under a doubtful enactment (see [31] above).
[34] Furthermore, the central importance of unfairness in any exercise in statutory construction of the present kind must be squarely acknowledged. In Secretary of State v Tunnicliffe [1991] 2 All ER 712, Staughton LJ stated, at 724:
“In my judgment, the true principle is that Parliament is presumed not to have intended to alter the law applicable to past events and transactions in a manner which is unfair to those concerned in them, unless a contrary intention appears. It is not simply a question of classifying an enactment as retrospective or not retrospective. Rather, it may well be a matter of degree – the greater the unfairness, the more it is to be expected that Parliament will make it clear if that is intended.”
This passage was cited with approval by the House of Lords in L’Office Chérifien v Yamashita [1994] 1 AC 486, at 525. In the same case, Lord Mustill, delivering the judgment of the House, cautioned against excessive or mechanistic reliance on generalised presumptions and maxims:
“This is misleading, for the basis of the rule is no more than simple fairness, which ought to be the basis of every legal rule. True it is that to change the legal character of a person’s acts or omissions after an event will very often be unfair; and since it is rightly taken for granted that Parliament will rarely wish to act in a manner which seems unfair it is sensible to look very hard at a statute which appears to have this effect, to make sure that this is what Parliament really intended. This is, however, no more than common sense, the application of which may be impeded rather than helped by recourse to formulae which do not adapt themselves to individual circumstances and which tend themselves to become the subject of minute analysis, whereas what ought to be analysed is the statute itself.”
[At page 524.]
Their Lordships also recognised that in certain contexts the distinction between substantive and procedural rights is unclear and, further, that procedural rights can sometimes be of greater value than substantive rights. In consequence, their preferred approach was to scrutinise intensely the practical value and nature of the rights engaged and the statutory language itself." (Cancino v. SoS [2015] UKFTT 59 (IAC), McCloskey J)
Discretions
- Importance of consistent and predictable approach to discretions
"[37] There is a further reason to follow the Upper Tribunal's guidance in RBKC. The provision considered in RBKC was in materially the same terms as rule 15(1)(c) in the FTT Rules, and the overriding objective is in materially identical terms. Out of comity, and in the interests of consistent and predictable case management under materially the same rules, we consider that the Tax Chamber should ordinarily adopt a similar structured approach." (HMRC v. Healthspan Limited [2026] UKUT 194 (TCC), Judges Raghavan and Paines KC)
Legal certainty as to procedural matters
- Whether step taken cannot depend on intention
"[99] As Tuckey LJ recognised in Barnes, "bringing" necessarily refers to action on the part of the claimant. The statute is concerned with something that is done, not with the reasons for doing it, or the claimant's (or their lawyer's) mindset at the time when they do it. Legal certainty could not be achieved if the question whether an action has been "brought" depended upon whether the claimant or their legal representatives had a particular intention, or were acting bona fide but mistakenly, or matters of that nature, which would not only be a recipe for satellite litigation but would fly in the face of the language of the 1980 Act. There must be a bright line which is readily identifiable in all cases, irrespective of whether hard cases may fall on one or other side of that line." (Siniakovich v. Hassan-Soudey [2026] EWCA Civ 215)
Legal certainty and precedent
- Important that litigants + advisers know as surely as possible what law is
"[21] Furthermore, it is important not to undermine the role of precedent in the common law. Even though it appears clear that both the reasoning and conclusion on the point at issue in Cookson v Knowles and Graham v Dodds were flawed, at least in the light of current practice, it is important that litigants and their advisers know, as surely as possible, what the law is. Particularly at a time when the cost of litigating can be very substantial, certainty and consistency are very precious commodities in the law. If it is too easy for lower courts to depart from the reasoning of more senior courts, then certainty of outcome and consistency of treatment will be diminished, which would be detrimental to the rule of law." (Knauer v. MoJ [2016] UKSC 9)
- Justifying a cautious approach UKSC overruling itself
"[47] As I have explained at para 5 above, this court will be very circumspect before accepting an invitation to invoke the 1966 Practice Statement, because it considers it to be important not to undermine the role of precedent and the certainty which it promotes. The court will not overrule a previous decision simply because the justices would decide the case differently today: Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd [2020] UKSC 36; [2021] AC 1014, para 49, citing Horton v Sadler [2006] UKHL 27; [2007] 1 AC 307, para 29. This principle is vitally important to the operation and reputation of a court which does not sit en banc, and whose composition consequently varies from one case to another. In such circumstances, the principle is essential to counter the risk that the outcome of cases might otherwise depend, or at least might appear to depend, on who happened to be sitting. It is also essential to enable the consistent application of the law, and its coherent development, to take place. As was said in R v National Insurance Comr, Ex parte Hudson [1972] AC 944 (“Ex parte Hudson”), pp 996-997, if a tenable view taken by a majority in the first appeal could be overruled by a majority preferring another tenable view in a second appeal, then the original tenable view could be restored by a majority preferring it in a third appeal, and finality of decision would be utterly lost. For all these reasons, there is great force in the observation made by Lord Hoffmann in relation to the Judicial Committee of the Privy Council in Lewis v Attorney General of Jamaica [2001] 2 AC 50, 90:
“If the Board feels able to depart from a previous decision simply because its members on a given occasion have a ‘doctrinal disposition to come out differently’, the rule of law itself will be damaged and there will be no stability in the administration of justice”.
That observation is equally applicable to this court."" (Re Dalton [2023] UKSC 36)
Reasonableness standards and certainty
- Standard of care in negligence should not vary from judge to judge and become arbitrary
"[19] Where a claim is brought for professional negligence the court will usually expect to be provided with some evidence to enable it to assess whether the relevant standard of care has been departed from. No such evidence was adduced in this case. Judges, recalling how things were when they were in practice, no doubt feel confident that they can do this for themselves without evidence. But judges need to be careful lest the decision in the case depends on the standard they would set for themselves. If this were to happen, it would vary from judge to judge and become arbitrary. Considerable weight should therefore be given to the decision of the judge at first instance who heard all the evidence..." (Moy v. Pettmann Smith [2005] UKHL 7, Lord Hope)
Declaratory theory of law and certainty
- Retrospective effect of declaratory theory of law an unavoidable consequence
"[121] The taxpayers argued, variously, that the conforming interpretation of the UT infringed a legitimate expectation and/or the principle of legal certainty and/or the contra legem principle, and amounted to judicial legislation.
[122] The first two objections, when analysed, are complaints about the effect of the declaratory theory. The reasoning of Falk LJ in Prudential (see, in particular, paragraphs 74-82, above) is a complete answer to these complaints. The effect of the declaratory theory is that (if the UT's conforming interpretation is otherwise appropriate), it declares the relevant law about exit charges as it has always been. It does not matter what the taxpayers thought at the time, although it is clear that both (rightly) considered that the exit charge was contrary to EU law. We do not have a full picture about the legal advice which the Trustees or Redevco had been given when they decided to cease to be resident in the United Kingdom. I am nevertheless prepared to accept that they might not have anticipated that, many years later, a conforming interpretation would defeat their hope that they would not have to pay any exit charges. Criticisms based on legitimate expectation or legal certainty are inapt. They do not make the UT's conforming interpretation wrong. Any such interpretation is inevitably retrospective. For that reason, I do not consider that the F-tT's or the UT's conforming interpretation is somehow invalidated by Parliament's decision not to make its later amendments to the legislation retrospective.
...
[130] The retrospective effect of the declaratory theory means that we now know that the Trustees did, in law, have the option of paying by instalments when they decided to move to Cyprus. That they could not exercise that option, in fact, is a consequence of the time which has elapsed since then as this dispute has clarified the relevant law (cf Prudential). It is not contrary to any principle of EU law." (Trustees of Panico Settlement v. HMRC [2026] EWCA Civ 744, Laing, Asplin, Miles LJJ)
RETROSPECTIVITY: PRESUMPTION AGAINST
- Presumption that legislative change prospective only
"[22] The general rule, applicable in most modern legal systems, is that legislative changes apply prospectively. Under English law, for example, unless a contrary intention appears, an enactment is presumed not to be intended to have retrospective effect. The logic behind this principle is explained in Bennion on Statutory Interpretation, 6th ed (2013), Comment on Code section 97:
“If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow’s backward adjustment of it. Such, we believe, is the nature of law. ‘… those who have arranged their affairs … in reliance on a decision which has stood for many years should not find that their plans have been retrospectively upset’.”
[23] EU law is no different in this respect...
...
[24] The policy behind the no retroactivity principle is thus similar to that described in Bennion - the need to ensure “legal certainty” and to protect the “legitimate expectations” of those who have relied on the law as it previously stood. The future effects principle is simply the other side of the same coin." (Walker v. Innospec Limited [2017] UKSC 47)
- Fundamental principle that citizens entitled to act on assumption that law is as set out in legislation
"[53] It follows from all this that upholding Mitting J’s costs order would infringe ANL’s article 10 rights for the reasons given by the Strasbourg court in MGN v UK and would therefore involve an injustice, but amending that costs order in the way sought by ANL would not only involve an infringement of Mr Miller’s A1P1 rights: it would undermine the rule of law. It is a fundamental principle of any civilised system of government that citizens are entitled to act on the assumption that the law is as set out in legislation (especially when its lawfulness has been confirmed by the highest court in the land), secure in the further assumption that the law will not be changed retroactively - ie in such a way as to undo retrospectively the law upon which they committed themselves. To refuse the costs order which Mr Miller seeks would directly infringe that fundamental principle. While freedom of expression is, of course, another fundamental principle, it is not so centrally engaged by the issue in this case: the decision in MGN v UK is essentially based on the indirect, chilling, effect on freedom of expression of a very substantial costs order." (Times Newspaper Limited v. Flood [2017] UKSC 33)
- Presumption that the law in place at the time of the material events applies
"[66] In our judgment the Court of Appeal in Lipton fell into error in holding that it was the amended version which governs the Liptons' claim. This is contrary to a basic principle of the rule of law which Parliament must be taken to respect, according to which it is the law in place at the time the material events occur which applies, rather than some different version introduced at a later date. To analyse the position as the Court of Appeal did would produce strange results and would undermine the important value of finality in litigation. It would mean that the relevant law applicable to two identical cases which occurred on the same date might be different, depending on the time at which the relevant claims were brought and the vicissitudes of listing hearings in the respective courts in which the proceedings were commenced. It might also encourage parties to continue litigation even if the court at first instance had been completely correct in understanding the law which it was its task to apply to the case and had committed no legal error." (Lipton v. BA Cityflyer Ltd [2024] UKSC 24)
- Applies to completed transactions
"[101] [The taxpayer] submitted that this conclusion means that the legislation is retrospective but we do not agree. We agree with [HMRC] that the presumption against retrospective legislation addresses the impact of legislation on transactions which have already happened. There are numerous instances of legislation changing the tax treatment going forward of existing arrangements and on occasions with no, or very limited, grandfathering. This is in the very nature of anti-forestalling provisions." (Ferguson-Davie v. HMRC [2024] UKFTT 321 (TC), Judge Bowler)
- Apportionment not implied
"[102] [Counsel for the taxpayer] raised at the hearing that we could consider the possibility of apportionment. She submitted that to the extent that an amount of carried interest arises partly in connection with the disposal of assets before July 2015, and partly in connection with a disposal of assets after July 2015, there is no conceptual difficulty with apportioning the amount so as only to carve out the proportion that arises in connection with the disposal of assets prior to July, and the rest would then be subject to the new regime.
[103] We decline to follow this approach despite its apparent attractiveness as an ostensibly fair way of applying the new regime. We recognise that the courts have at times interpreted legislation as permitting apportionment without clear language to that effect. However, we are not inclined to do so in this case for the following reasons:
(1) the draftsman has used apportionment wording within the new regime provisions in s103KA(4) stating that s103KA(2) and (3) do not apply "to the extent that" carried interest is brought into account in taxing the recipient to income tax on profits of a trade or the carried interest constitutes a co-investment repayment or return. There is no reason why the draftsman would use such wording in s103KA itself for particular purposes and then fail to use it in s43(2) if apportionment was envisaged;
(2) as [HMRC] identified, the Explanatory Notes state that "When carried interest arises on or after 8th July 2015 the gain will normally be equal to the sum received." There is no suggestion that there was any intention for there to be apportionment, or for the new rules to apply to only part of the carried interest that arises after 8th July 2015; and
(3) as a practical matter in this case we struggle to see on what basis the apportionment would take place. All of the profits were generated by the pre-8 July 2015 disposals so apportionment based on profit achieves no more than saying that in fact the Carried Interest Amounts arose in connection with those earlier disposals." (Ferguson-Davie v. HMRC [2024] UKFTT 321 (TC), Judge Bowler)
- Statutory power may be exercised retrospectively in the absence of express wording
"[52] Looking just at the narrow question before us,
(1) There is no limit in the language of section 165(3) on the circumstances in which HMRC can agree to a non-standard accounting period.
(2) Hoey indicates that there is no need for a provision such as section 165(3) to state expressly that an agreement under it can operate retrospectively before that is permitted.
(3) Section 165(3) allows HMRC and a bookmaker to agree a non-standard accounting period. Except for circumstances where HMRC's refusal to agree a non-standard accounting period could be subject to a successful challenge on public law grounds, such as those outlined in the quotation from Beehive Stores set out in [4] above, the provision does not allow one party to force a non-standard accounting period on the other. That is the safeguard of fairness for both parties.
[53] On this basis, we can see no reason not to give the words of the statute their plain and ordinary meaning. This is sufficient for us to conclude that HMRC have power under section 165(3) FA 2014 to agree to a non-standard accounting period with retrospective application." (Betindex Limited v. HMRC [2024] UKFTT 222 (TC), Judge Baldwin)
FINALITY
- Presumption against HMRC having open ended time to assess
"[21]...Thirdly, the cure which HMRC proposes for dealing with this problem, if it is one, seems to me to be a great deal worse than the disease. If the charge to tax were to be treated as arising at the date of assessment, it would follow that the chargeable period would be wholly at the discretion of the Revenue. That result, surprising enough in itself, would lead to the even more surprising conclusion that a charge to tax could be imposed without limitation any number of years after the facts which justified it." (John Mander Pension Trustees Limited v. HMRC [2015] UKSC 56, per Lord Sumption)
- UT accepting interpretation that meant relief available now but may cease to have been available based on future events
"[109] There were limited submissions before us on the question of what might happen to the IFRS 2 Debits in a case where an option was actually exercised. The possibility of retrospective removal of relief was referred to, as was the notion of some qualified claim to IFRS 2 Debits which envisaged their reconsideration in the event of a 20 subsequent exercise of the option. However, these notions were not fully developed and it is not necessary to decide them for the purposes of this appeal, which does not turn on any transactions in which there was an actual subsequent exercise of the option. Accordingly, we do not embark on that less than fully argued analysis. This appeal stops at the stage of determining the question which we were invited to 25 determine, which is the effect of section 1038 at the time the IFRS 2 Debits were claimed." (HMRC v. NCL Investments Limited [2019] UKUT 111 (TCC), Mann J and Judge Herrington)