Atkinson (Inspector of Taxes) v Dancer
| Jurisdiction | England & Wales |
| Judgment Date | 08 July 1988 |
| Date | 08 July 1988 |
| Court | Chancery Division |
Chancery Division.
Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. Janek Matthews (instructed by Badhams) for the two taxpayers.
Before: Peter Gibson J.
The following cases were referred to in the judgment:
Edwards (H.M.I.T.) v. Bairstow & Anor. ELR[1956] A.C. 14
McGregor (H.M.I.T.) v. Adcock TAX(1977) 51 T.C. 692
Capital gains tax - Relief for transfer of business on retirement - Sale of land by farmers - Whether sale of land was disposal of "part of a business" - Capital Gains Tax Act 1979 section 124 subsec-or-para (1)Capital Gains Tax Act 1979, sec. 124(1).
This was an appeal by the Crown from two decisions of different General Commissioners. each case the Commissioners had allowed the taxpayer's appeal against the inspector's refusal of the relief provided by theCapital Gains Tax Act 1979 section 124Capital Gains Tax Act 1979, sec. 124 for the transfer of a business on retirement.
In the first case Mr. Dancer, who was born in 1919, had carried on a mixed farming business on 89 acres of land in Bedfordshire since the 1950s. Of the 89 acres, 22 were freehold and leasehold. In 1981 Mr. Dancer considered reducing the scale of his farming activities for health reasons by discontinuing the production of eggs. By March 1983 egg production had ceased. In December 1983 he completed a contract for sale of nine acres of land which had not been used for egg production.
In the second case, Mr. Johnston, who was born in 1920, and his sister jointly inherited from their father, in 1971, a farm of 78 acres in Dorset. In 1983-84 Mr. Johnston's health deteriorated and, finding he could not manage all the farm, he decided to sell part of it. In April 1984 he sold 17 acres to a neighbour and in December of that year he sold a further 18 acres to the same purchaser.
Mr. Dancer was assessed to capital gains tax for 1983-84 in the sum of £79,526. Mr. Johnston was assessed for the year 1983-84 in the sum of £10,261 and for the year 1984-85 in the sum of £14,139. In neither case was relief given under the Capital Gains Tax Act 1979, Capital Gains Tax Act 1979 section 124sec. 124.
Each taxpayer appealed to the General Commissioners for his district who allowed the appeal. The Crown appealed to the High Court.
The Revenue contended that relief under Capital Gains Tax Act 1979 section 124sec. 124 was available only on the disposal of a business or part of a business and the disposal of farm land was merely the disposal of a business asset, unless the disposal was the cause of a material change in the business. Moreover, in Mr. Johnston's case the piecemeal sale of land could not be treated as one transaction disposing of part of the business.
It was submitted for the two taxpayers that farm land was an asset in a different category from other assets. It was the very substance of the business and the disposal of part of a farm constituted the disposal of part of the business. In Mr. Johnston's case, the two disposals should be treated as one transaction, substantially reducing the acreage of his farm and thus his business activities.
Held, allowing the Crown's appeal in each case:
1. Capital Gains Tax Act 1979 section 124Section 124, which drew a distinction between a business or part of a business and an asset used for the purposes of the business, did not single out farmland for special treatment. Thus the fact that a farmer simply sold some of his land did not amount to the sale of the farming business or part of it because it would only be the sale of a business asset.
2. The test to be applied in deciding whether a transaction was the sale of a business or part of a business was whether the transaction caused a material interference with the whole complex of activities involved in carrying on the business. (McGregor (H.M.I.T.) v. AdcockTAX(1977) 51 T.C. 692, followed.)
3. In neither case did the Commissioners ask themselves what changes in the farming activities of the taxpayers were caused by the dispositions in question. In Mr. Dancer's case the significant change in his business occurred when egg production ceased but there was no link between the cessation of egg production and the sale of the land. In Mr. Johnston's case each of the two dispositions had to be considered separately and the changes caused by each one were merely insignificant changes of scale. Accordingly neither taxpayer was entitled to the relief claimed.
1. At a meeting of the Commissioners for the general purposes of the income tax on 28 April 1987 held at the Queensway Hall, Dunstable, Christopher Dancer ("the taxpayer") appealed against an assessment to capital gains tax for the year ended 5 April 1984 in the sum of £79,526, in respect of the disposal of land at Heath and Reach, Bedfordshire.
2. Shortly stated, the question for determination was whether that disposal of farmland in December 1983 by the taxpayer constituted the disposal of part of his business so as to entitle him to relief underCapital Gains Tax Act 1979 section 124 subsec-or-para (1)sec. 124(1)(a) of the Capital Gains Tax Act 1979.
3. The taxpayer was represented by Mr. David J. Watts FCA FCCA, a partner in Brett Jenkins & Partners, chartered accountants, Salter House, 263/265 High Street, Berkhamstead, Hertfordshire. The inspector was represented by Mr. P.W. Clarke, an inspector of taxes.
4. Only the taxpayer gave evidence.
5. The following facts were found or admitted:
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(a) The taxpayer had carried on mixed farming at Spinney Farm, Heath and Reach, Bedfordshire since the early 1950s.
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(b) Initially the farm comprised 214 acres, some land held freehold, the remainder tenanted. Over the years the owners of the tenanted land, in the main sand mining and mineral extraction companies, terminated tenancies as and when they required the land for trading purposes, reducing the area of the farm by early 1983 to 89 acres.
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(c) The mixed farming activities carried on by the taxpayer included calf, beef and sheep rearing, with a small amount of arable land. As the farm reduced in size the taxpayer concluded that a point would be reached where, to make a profit, either more intensive use of the land would be required, or, a move would have to be made to a larger farm. The latter alternative was discarded due to the high borrowing it would entail. Consequently in the early 1970s the taxpayer extended his activities to include egg production. Furthermore he realised that he could only continue to farm more intensively whilst his age and health allowed and that when he wished to retire, either totally or partially, he would need to sell part or all of the land he owned, retaining his residence and if retirement was not complete, as much land as he could comfortably manage.
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(d) In 1981 the taxpayer had a hip replacement operation, suffered an embolism and chronic high blood pressure and shortly thereafter on medical advice reduced his farming activities. He was reluctant at first to sell any of his land in case his son, aged 23, wished to succeed him. When his son resolved to follow another career the taxpayer decided to sell part of his land.
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(e) Egg production was reduced and had ceased entirely by 31 March 1983 and the only continuing activities were contract corn growing; the grazing of store cattle and sheep, with a small amount of calf rearing. The land sold was previously used to grow cereals and was not the land previously used for egg production or cattle.
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(f) In December 1982 the taxpayer entered into a conditional contract with Bedford Silica Sand Mines Ltd. to sell to that company some nine acres of land for £100,000. Notice was given on behalf of the company in December 1983 that the purchase was to proceed; completion taking place in March 1984. The disposal gave rise to a gain which was agreed by the inspector and Mr. Watts to be £79,526. Of the 80 acres of land which then remained and which the taxpayer continued to farm, 13 acres were held freehold (including his residence) and 67 acres tenanted. It had not been necessary to seek a purchaser for the land as the farm was surrounded by quarries and regular purchase offers were received.
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(g) The taxpayer was 64 years and eight months old in December 1983 when notice was given that the sale of the nine acres of land was to proceed.
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(h) The taxpayer had owned and operated his farming business for a period in excess of ten years prior to December 1983.
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(i) The farm accounts and tax computations prepared by Mr. Watts and submitted to H.M. Inspector of Taxes included the following figures:
Year ended
31/3/82
31/3/83
31/3/84
31/3/85
SALES
£
£
£
£
Cattle
1924
15,984
3880
5219
Sheep
2141
1586
4019
1222
Poultry and Eggs
23,261
17,949
597
Nil
Corn
Nil
9896
51
4960
Miscellaneous
128
86
375
117
27,454
45,501
8,922
11,518
Gross Profit (Loss)
6497
13,315
(1,829)
3281
Net (Loss)
(6,978)
(493)
(11,655)
(5,037)
Tax Profit (Loss)
(4,891)
1466
(9,760)
(3,233)
6. In his evidence the taxpayer stated that the farm was managed as an integrated business and that all sections were inter-related and interdependent. The field sold was used to produce barley or wheat (and in one year kale) to feed his livestock and to provide fodder and bedding. It was important to the poultry business as it was the only suitable field for the disposal of poultry manure during the winter, being level and readily accessible from the road. This in turn provided valuable fertiliser for the field.
7. The Commissioners were referred by both parties to one authority, namely McGregor (H.M.I.T.) v. Adcock TAX(1977) 51 T.C. 692.
8. It was contended on behalf of...
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