Jarmin (Inspector of Taxes) v Rawlings
| Jurisdiction | England & Wales |
| Judgment Date | 17 November 1994 |
| Date | 17 November 1994 |
| Court | Chancery Division |
Chancery Division.
Knox J.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
David Ewart (instructed by Winterbothams, Stroud) for the taxpayer.
The following cases were referred to in the judgment:
Atkinson (HMIT) v Dancer; Mannion (HMIT) v JohnstonTAXTAX(1988) 61 TC 598; [1988] BTC 364
Graham v Green (HMIT) TAX(1925) 9 TC 309
McGregor (HMIT) v Adcock TAX(1977) 51 TC 692
Pepper (HMIT) v Daffurn TAX[1993] BTC 277
Capital gains tax - Retirement relief - Disposal of business or part of business - Farmer sold one and a half acres of land with dairy buildings and disposed of dairy herd over a period between the date of the contract for sale and completion - Milk quota retained to enhance sale value of the farm - Whether disposal of part of the business -Finance Act 1985 section 69 subsec-or-para (1)Finance Act 1985, s. 69(1)(2)(a) (Taxation of section 163 subsec-or-para (1)Chargeable Gains Act 1992, s. 163(1)(2)(a)).
This was an appeal by the Revenue against a decision of the general commissioners for North West Wiltshire that retirement relief under theFinance Act 1985 section 69Finance Act 1985, s. 69 was available in respect of a gain realised when a farmer sold the buildings used for his dairy business, disposed of his dairy herd and ceased milk production on completion of the sale.
Before October 1988 the taxpayer, who was then 61 years old, had for many years owned some 64 acres in Wiltshire with a milking parlour and yard, a hay barn, implements shed and cattle sheds. His livestock consisted of a dairy herd of 34 animals and he employed a full-time man in his dairy farming enterprise which constituted the whole of his business.
In October 1988 the taxpayer sold at auction the milking parlour, yard and storage barn with a small piece of riverside pasture of no significant value for the dairy business, the whole amounting to 1.2 acres. The sale was completed on 27 January 1989.
The dairy herd was disposed of gradually between October 1988 and May 1989. The animals not sold by the completion date of 27 January were transferred to the taxpayer's wife's farm but he did not have any interest in or financial benefit from their milk after that date. The taxpayer did not dispose of his milk quota but leased it so that the benefit of the milk quota could eventually be included in any later sale of the land.
After 27 January, the taxpayer reared and finished store cattle on the land previously grazed by the dairy herd.
The question was whether the taxpayer had disposed of the whole or part of his farming business within the meaning of the Finance Act 1985 section 69 subsec-or-para (2)Finance Act 1985, s. 69(2)(a)and thus whether he was entitled to retirement relief from capital gains tax on the gain realised on the sale of the land and buildings.
The general commissioners recognised that the sale of some of his land by a farmer by itself was not enough to amount to a disposal of the business or part of the business and, after applying the test whether the disposal of the land caused such interference with the whole complex of activities and assets as to bring the case within the legislation, they allowed the appeal.
The Revenue argued that there was a mere sale of assets at the date of the auction. It was contemplated that relief would be given only in respect the sale of a business or part of a business in one transaction. Since milk production continued after the date of the auction, and the later transactions by which the dairy herd was sold were not connected with the sale of the land, there was no sale of part of the business at the relevant time.
Held, dismissing the Revenue's appeal:
1. Although the Finance Act 1985 section 69 subsec-or-para (1)Finance Act 1985, s. 69(1) envisaged a disposal on a particular day, and that by the Capital Gains Tax Act 1979 section 27 subsec-or-para (1)Capital Gains Tax Act 1979, s. 27(1) the date of disposal was the date of the contract for sale, in this case the date of the auction, it would be highly artificial to look only at the date of a contract in order to assess whether there was or was not a sale of part of a business, particularly where the relevant disposal was effected by a contract followed by completion. To ignore events after the making of the contract would be to ignore the performance of the disposal itself. It was legitimate to have regard to simultaneous disposals of other assets used in the business in assessing whether or not a particular disposal could be categorised as a sale of part of a business.
2. The sales of cattle between contract and completion could properly be taken into account, but sales of cattle after completion could not. However, it was not necessary that all the assets of a business or part of it had to be disposed of. It was in any particular case a matter of judgment whether, on the facts found, the business or part of the business had been disposed of. On the facts found, it was open to the general commissioners to find that the dairy farming in this case was a separate business from the rearing and finishing of store cattle and that the dairy farming business was disposed of by the sale of land at auction coupled with the cessation of milking for profit at completion of that sale. The critical factor was that a business connoted an activity. The activity here was the production and sale of milk which ceased at completion of the sale of the land. The sale of the milking parlour was a vital ingredient in the cessation making it possible to say that the sale caused such an interference with the whole complex of activities and assets as to amount to a disposal of part of the business. The sale of the milking parlour and yard coupled with the cessation of all milking operations for the taxpayer's benefit amounted to a disposal of his dairy farming business.
1. At a meeting of the commissioners for the general purposes of income tax for the division of North West Wiltshire held on 22 June 1993, Brian Edwin Rawlings ("the taxpayer") appealed against an assessment to chargeable gains tax made upon him for the year 1988-89 in the amount of £100,000 in respect of a disposal of land and buildings at Baldham Mill Farm, Wiltshire.
2. Shortly stated, the question for determination was whether the sale of certain assets was merely the disposal of business assets, or whether it constituted the sale of part of the business, entitling the taxpayer to relief from capital gains tax underFinance Act 1985 section 69s. 69 of the Finance Act 1985.
3. The taxpayer was represented by Mr F J Baker and Mrs M J Parke of Messrs Randall & Payne, chartered accountants, of 23 High Street, Melksham, Wiltshire.
The inspector of taxes appeared in person, assisted by Nigel Mark Cottell, also an inspector of taxes. Only the taxpayer gave evidence before us.
4. [Para. 4 listed the documents before the commissioners.]
5. We were referred to the following cases:
McGregor (HMIT) v Adcock TAX(1977) 51 TC 692
Atkinson (HMIT) v Dancer; Mannion (HMIT) v JohnstonTAXTAX(1988) 61 TC 598; [1988] BTC 364
6. It was contended on behalf of the taxpayer that the sale of the land and buildings at Baldham Mill Farm, together with the sale of the dairy herd, was a material interference in his activities, and thus constituted a sale of a part of his business for the following reasons:
(a) The land sold at Baldham Mill Farm included the milking yard, parlour, storage barn, implement sheds, cattle sheds, 64 acres of land and a dairy herd of 34 animals. The taxpayer employed a full-time farm labourer from 1982 until January 1989. There were no other milking facilities on the residue of the farm and thus he ceased the dairy side of his business. To resume dairying would involve the erection of new buildings and a parlour, and this would entail obtaining a number of permissions from the local authority and the Ministry of Agriculture, etc. which might not be forthcoming.
(b) In further support of this contention it was agreed that the taxpayer disposed of his dairy herd. It was admitted that this was not sold on a single occasion, but for commercial reasons the herd was sold over a period. In January 1989 there remained approximately 20 cattle. Most of these were in calf and were transferred to the taxpayer's wife's farm for calving and then sold. By May 1989 the taxpayer was left with six cattle, three in calf and three barreners, and all but one barrener were sold during the remainder of 1989.
(c) It was accepted that the milk quota had not been sold. This was not in order to retain the possibility of reopening the dairy business, but it was leased and not sold for purely commercial reasons, as the taxpayer had been advised that the remainder of the land would eventually sell better if it had milk quota attached to it.
(d) As a result of the closing down of the dairy, and the sale of the herd, the taxpayer has been able to make one man redundant, and his own working hours have been reduced by half. This was one of the reasons for the decision to sell.
(e) It was contended that the case of McGregor v Adcock should be distinguished from the present case in that the business of Mr Adcock was a mixed farming business both before and after the disposal. The same business continued after the sale, albeit on a reduced scale. In the present case, an identifiable part of the business had been sold, and the business after the sale was materially different to that carried out before the sale. The taxpayer is now rearing and finishing store cattle. The sale had constituted an interference in the carrying out of the business.
(f) The case of Atkinson v Dancer was also to be distinguished in that Mr Dancer had sold no livestock or equipment when land was sold. The running down of his egg production that coincided with the sale of the land was not material in that the land sold had not been used for egg...
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