Christopher Martyn Chappell v Her Majesty's Revenue & Customs, SPC 00717

Spc00717

INCOME OR CAPITAL GAIN – payment for sale of partnership share – capital gain but no taper relief because the trade had not commenced – appeal dismissed

CHRISTOPHER MARTYN CHAPPELL Appellant

- and -

Special Commissioner: DR JOHN F. AVERY JONES CBE

Sitting in public in London on 7 November 2008

The Appellant in person

Lee Paddon and Nicola Parslow, HMRC Appeals Unit London &amp Anglia for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1. Mr Christopher Martyn Chappell appeals against an amendment to his self-assessment for the year 2002-03 giving effect to the conclusions contained in a closure notice dated 21 June 2007 to the effect that taper relief of 75 per cent is not available and that the income was taxable under Case I of Schedule D. The Appellant appeared in person; the Respondents (“the Revenue”) were represented by Mr Lee Paddon and Mrs Nicola Parslow.

2. The issue in this appeal is how a receipt by the Appellant of £500,000 pursuant to an agreement of 1 May 2002 should be taxed, the Appellant contending for capital gains tax as a business asset with taper relief of 75 per cent, and the Revenue for income tax either under Case I or Case VI of Schedule D.

3. The Appellant provided a witness statement and gave evidence and was cross-examined on one point. I also had a bundle of documents. I find the following facts:

   1. The Appellant entered into an oral agreement with Mr Jack Dellal, who is a well known figure in the property world, for property ventures under which each had a 50 per cent interest. This is described as a consortium called the Allied Commercial Consortium (“the Consortium”). I deal with its nature below

   2. The Appellant, on behalf of the Consortium, was interested in acquiring the head lease of Dolphin Square from Westminster City Council together with the sublease owned by Dolphin Square Trust Limited. He considered that by merging the two and actively managing the property, including granting long leases to tenants wanting to acquire them the value would be enhanced. Since the purchase was never finalised I shall not set out any details of what was proposed. Negotiations for the purchase began when an offer of £120m was made in November 2000, but no doubt there were earlier actions taken by the Appellant although I did not see anything as early as October 1999 mentioned in the Appellant’s income tax return (see below). The offer was later increased to £145m although I am not sure when, but the offers were eventually unsuccessful.

   3. Mr Justin Cadbury contacted the Appellant in connection with the property venture and the Appellant considered that the chances of success for the purchase would be increased if Mr Cadbury were involved. The Appellant entered into an agreement of 1 May 2002 (“the Agreement”) with Swan House Investments Holdings Limited (“Swan”), Mr Cadbury’s holding company under which for £500,000 the Appellant sold to Swan 10 per cent of his 50 per cent interest (ie 5 per cent of the whole) in the Consortium.

   4. The Agreement recited that the Appellant on behalf of the Consortium had been engaged in research into the Dolphin Square project for 2 years and that they had received an offer dated 21 February 2002 from Crown Dilmun plc for the sale of the two leasehold interests for £175m. The offer refers to entering into a lock out agreement between all parties and that there should be no acceptance of any other offer by the Consortium. The Appellant had accepted this offer (subject to contract) on behalf of the Consortium on 22 February 2002.

   5. the Agreement provided that :

“[The Appellant] covenants with Swan to use his best endeavours to seek...