Andrew & Shirley Smith v The Commissioners of Inland Revenue, SPC 00388
| Jurisdiction | UK Non-devolved |
| Judge | J Gordon REID QC |
| Judgment Date | 21 October 2003 |
| Respondent | The Commissioners of Inland Revenue |
| Appellant | Andrew & Shirley Smith |
| Reference | SPC 00388 |
| Court | First-tier Tribunal (Tax Chamber) |
Capital Gains Tax; disposal; whether missives of sale of heritable property contained option; occupancy rights; error in disposition; effect of letter of understanding Capital Gains Taxes Act 1979 sections 1, and 27
ANDREW SMITH Appellants
SHIRLEY SMITH
- and -
THE COMMISSIONERS OF INLAND REVENUE Respondents
Special Commissioner: J Gordon Reid Q.C., F.C.I.Arb.
Sitting in Edinburgh on 18th September 2003
Adam J Whitehouse, CA for the Appellant
Douglas Pate, solicitor, Inland Revenue, Scotland for the Respondents
© CROWN COPYRIGHT 2003
DECISION
Introduction
These appeals concern the capital gains tax consequences of the sale of a farm, known as the farm and lands at Marshallmark and Lanehead, Dalleagles, New Cumnock, Ayrshire (“LaneHead”) and owned by Andrew Smith and his wife, Shirley Smith. They have appealed against an assessment issued to each of them on 15/7/97 in the sum of £94,629. Their appeals were heard together at Edinburgh on 18th September 2003. Adam J Whitehouse, CA of Whitehouse & McFadden, Chartered Accountants, Edinburgh appeared on behalf of the Appellants. Mr Smith was present at the Hearing. Douglas Pate, solicitor, of the Inland Revenue Solicitor’s Office, Edinburgh appeared on behalf of the Respondents (“the Revenue”). A Statement of Agreed Facts was produced together with an agreed bundle of documents. Further common ground emerged during the course of the Hearing and from an examination of the documents. Skeleton arguments were also produced in advance of the Hearing. At the Hearing, Mr Pate tendered a file of Authorities. No witnesses gave evidence.
Procedure
At the outset of the Hearing Mr Whitehouse lodged a copy of his letter dated 16/9/03 to Mr Pate, and proposed to lodge a bundle of (original) Title Deeds. In that letter, he asserted that there should be a radical change in the capital gains computation. This was based upon the sale by Mr Smith of a one half share of another farm in or about 1982, a farm of which Mrs Smith did not own any part. Mr Pate responded by letter dated 17/9/03 essentially noting the change of stance, and questioning the assertion regarding the title to the other farm.
Mr Whitehouse intimated that he did not intend to call any witnesses but wished to lodge the Title Deeds to establish the title position relating to the farm sold in 1982. Mr Pate’s position was that he had not had a sufficient opportunity to investigate the new material and the possible effect on the Appellants’ tax liability although he observed that such investigations that he had made indicated that the new material might increase the Smiths’ overall tax liability arising out of the sale of Lanehead. I offered parties a short adjournment to consider whether they could agree the basis upon which the Hearing might proceed. Following that adjournment parties were agreed, that the Hearing should proceed but should consider only the following question:-
Whether there was a disposal for Capital Gains Tax purposes by each of Andrew Smith and Shirley Smith of Lanehead and Marshallmark Farms, New Cumnock, and if so whether the time at which each such disposal was made for the purposes of section 27 of the Capital Gains Taxes Act 1979 fell within the year of assessment 1991/92?
I agreed to proceed on that basis. It was also agreed that parties should lodge and intimate their proposals for further procedure within eight weeks of the date of my decision. I should also record that a related dispute concerning retirement relief and an Inland Revenue Extra Statutory Concession, which featured in the Skeleton Arguments, formed no part of the issue ultimately discussed before me. In the course of the Hearing, Mr Whitehouse accepted that if I were to conclude that the disposals were made in the year of assessment 1991/92 then there was no retirement relief due. He also no longer insisted in his application to lodge the Title Deeds mentioned above.
Facts
The first ten paragraphs comprise the Statement of Agreed Facts:
1. Andrew Smith (“Mr Smith”) was born on 18 April 1944 and his wife Mrs Shirley Robinson or Smith (“Mrs Smith”) was born on 21 July 1949. They reside at Lanehead Farm, Dalleagles, New Cumnock, Ayrshire (and together are referred to as “the Appellants”).
2. The Appellants carried on business at Lanehead Farm in partnership as farmers under the firm name of A & S Smith from 1982 until 1 November 1999 when their daughter Sharron Smith became a partner.
3. On 23 May 1991 by letter of offer (“the offer”) the British Coal Corporation offered to purchase the farm and lands at Marshallmark and Lanehead, Dalleagles (“the said subjects”) from the Appellants, the heritable proprietors of the said subjects, for the sum of £400,000, subject to certain terms and conditions. The offer is document 1 in the agreed bundle of documents (“the bundle”).
4. The offer was accepted by letter on behalf of the Appellants on 29 May 1991 (“the acceptance”). The acceptance in copy form is document 2 in the bundle. The waiver of Coal Contractors Limited’s rights referred to in clause 3 of the offer took place on 15 August 1991.
5. On 12 August 1991 the Appellants executed a disposition of the said subjects in favour of the British Coal Corporation (“the purchasers”) for the sum of £400,000. Settlement was effected in accordance with a state for settlement which is document 3 in the bundle.
6. The disposition was registered on the purchasers’ behalf in the General Register of Sasines for the County of Ayr on 21 August 1991. The registered disposition is document 4 in the bundle.
7. The firm of A & S Smith continued to occupy the said subjects after the date of entry and paid no rent for the 12 month period to 31 January 1992. for periods following 31 January 1992 payments were made by that firm to the purchasers in respect of the use of the said subjects. Sample invoices in respect of payments which were made to the purchasers (or the appropriate division of their organisation) are documents 6 and 7 of the bundle. Sample documents, signed on behalf of the purchasers and by Mr Smith in the terms indicated, relate to a short assured tenancy and are annexed to document 8 of the bundle.
8. The firm of A & S Smith continue to occupy and farm the said subjects, excluding the farmhouse which Mr and Mrs Smith continue to occupy.
9. All materials comprising documents 8-22 (including annexes) of the bundle are copies of documents which have been generated, and in the case of correspondence which has been exchanged, as indicated. In relation to the documents numbered 114 Howat Associates acted on behalf of the Appellants.
10. Document 5 of the bundle is a computation relative to the disposal of the said subjects which was supplied by Whitehouse & McFadden, acting on behalf of the Appellants, to HM Inspector of Taxes by letter dated 9 January 1998. Whitehouse & McFadden intimated on 9 September 2003 that this computation is not in final form as professional fees relative to the interpretation of the offer and the acceptance have yet to be quantified and that there remains the possibility of a claim under section 69(1)(b) Finance Act 1985.
11. The offer dated 23/5/01 provided inter alia as follows:-
“On behalf of our clients …… we hereby offer to purchase ……….at the price of …(£400,000)… and on the terms and conditions contained in the Schedule of Conditions …and on the following terms and conditions:-
1. As well as the price referred to above the Corporation will also pay to the sellers the sum of THIRTY FIVE THOUSAND POUNDS (£35,000) Sterling (inclusive of VAT, if any) as full and final compensation in respect of any loss incurred on the forced sale of stock and equipment.
2. (a) The date of entry to the subjects shall be First February Nineteen hundred and Ninety one notwithstanding the date hereof.
(b) Actual occupation unencumbered by occupancy rights of whatever nature, to the subjects, shall be at First February Nineteen hundred and Ninety two or such earlier date on which the sellers are entitled to take occupation of...
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