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HMRC loses at appeal

HMRC loses at appeal - Saffery Champness says outcome of case over apportionment of sale proceeds for development land is encouraging for others

In a recent appeal to the Upper Tribunal (Lands Chamber) over the issue of apportionment for Capital Gains Tax purposes, the Tribunal has found in favour of the appellants, mother and son Mrs D Oates and Mr R Oates, and against HMRC.

Susie Swift, a Partner in the Landed Estates and Rural Business Group of UK top 20 Chartered Accountants Saffery Champness and based in the firm’s Inverness office, says that Mrs and Mr Oates had seemingly won against the odds, which made this an even more important ruling for those selling a house, land or other property for future development and the tax implications of that sale.

The Oates case revolved around the sale for £725,000 of a 3 bedroom stone farmhouse, attached barn in a poor condition, further outbuildings and scrub/agricultural land in total covering around 1.54 acres. The argument lay over apportionment of the different elements of the sale in order to assess the capital gain.  HMRC had split the sale proceeds £170,000 to the house and £555,000 to the land.  The Oates appealed this saying the split should be £325,000 for the house and £400,000 for the land and remainder of the buildings.

Susie Swift says:

The evidence for appeal presented by the Mrs and Mr Oates appears to have been barely adequate with no representation or presence at the Tribunal, and very little evidence or calculations in support.  Crucial to the case was apportionment on a ‘just and reasonable’ basis. However, having explored comparable evidence from similar properties, the split arrived at in the judgment was exactly as the appellants had submitted.

Other issues related to whether the house had been the Oates’ main residence, whether the adjoining land had been for occupation and enjoyment, and whether the apportionment for the house should be increased because of family sentiment.  In the event that the house had been sold and was to be demolished along with all other buildings on the site then the latter was not an issue.

Clearly what this case demonstrates is that you have to be prepared to challenge HMRC where you think their assessment is unreasonable.  In this hearing even though HMRC presented a very thorough response coupled with substantial evidence, the Tribunal found in favour of the appellants.

There are a number of points emanating from this case which are of significance to farms, estates and other rural businesses making disposals of land for development and, where in any doubt over apportionment for tax purposes, then professional advice should be sought.


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