Kirkham v Williams (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 13 February 1989 |
| Date | 13 February 1989 |
| Court | Chancery Division |
Chancery Division.
Vinelott J.
Mr. Giles Goodfellow (instructed by G.H. Burgess, Biddulph, Staffordshire) for the taxpayer.
Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment.
Edwards (H.M.I.T.) v. Bairstow & Anor. ELR[1956] A.C. 14
I.R. Commr. v. Paul UNK[1956] 3 S.A.L.R. 335
Iswera v. I.R. Commr. WLR[1965] 1 W.L.R. 663
Lionel Simmons Properties Ltd. (in liq.) & Ors. v. I.R. Commrs.TAX(1980) 53 T.C. 461
MacMahon & Anor. v. I.R. Commrs. TAX(1951) 32 T.C. 311
Sharkey v. Wernher ELR[1956] A.C. 58
Taylor v. Good (H.M.I.T.) TAX(1974) 49 T.C. 277
Income tax or capital gains tax - Part of land purchased by taxpayer used for business purposes and part developed for resale - Whether General Commissioners entitled to conclude that profit on sale of the whole property was assessable as trading profit under Income and Corporation Taxes Act 1988Sch. D, Case I.
This was an appeal by the taxpayer against the determination of the Special Commissioners for Macclesfield that a gain realised on the disposal of the whole of a property on part of which he built a house for resale was chargeable to tax as a trading profit, although the main reason for acquiring the site was to use part of it as premises for his business.
Since 1974 the taxpayer worked on his own account as a demolition and plant hire contractor doing a limited amount of farming as well. He contracted to carry out demolition work on a site known as Havannah Mills. When the work was finished in 1978 he purchased the site, which by that time comprised one remaining mill and ten acres of adjoining land for £17,000. He used part of the site for the storage of materials in connection with his business and used part of the mill as an office.
Before the purchase was completed the taxpayer unsuccessfully applied for planning permission to build a dwelling house on the site but a later application was granted. He erected a substantial dwelling house, doing most of the work himself, but it was never his intention to use it as a residence for himself and his family.
The whole site was sold in October 1982 for £110,000.
Estimated assessments were raised on the taxpayer for the year 1982-83 under Income and Corporation Taxes Act 1988Sch. D, Case I, and alternatively under the Income and Corporation Taxes Act 1970 section 488Income and Corporation Taxes Act 1970, sec. 488 (artificial transactions in land) both in the sum of £91,000.
On appeal to the General Commissioners, the taxpayer contended that he had acquired the Havannah Mills site for use in his business and therefore a capital gain was realised on its disposal. Since there had been no change in the nature of the business which had been carried on there and subsequently at a new property which he had purchased in 1982, he claimed to be entitled to roll-over relief for replacement of business assets.
The Commissioners, having found that the site was acquired principally to provide office and storage accommodation for the taxpayer's business, concluded nevertheless that the building of the house for resale was a trading venture and the profit on the sale of the site was assessable under Income and Corporation Taxes Act 1988Sch. D, Case I.
It had not been contended that the land was purchased as a capital asset of the business, part of which was appropriated to stock in trade.
On appeal to the High Court the taxpayer contended that the General Commissioners' conclusion was inconsistent with the facts as found. The dominant purpose in acquiring Havannah Mills was for the purposes of his business and was so used until the sale. The fact that the taxpayer had spent time and money on enhancing the value of the asset during the period of ownership did not prevent the gain on disposal from being a capital gain.
The taxpayer also submitted that, if the whole gain was not to be assessed to capital gains tax, the case should be remitted to the General Commissioners to apportion the purchase price and the sale price between the part acquired for the purposes of the business and the remainder attributable to the trading venture.
Held, dismissing the taxpayer's appeal:
1. There was no overriding principle that if it was a purpose of the taxpayer to acquire a capital asset for his business any steps taken to acquire it could not be a trading venture, such as the purchase for development of more land than was needed for the business. (Dictum of Lord Reid in Iswera v. I.R. Commr. WLR[1965] 1 W.L.R. 663 at p. 668 applied.)
2. Although the taxpayer's main reason for acquiring the site was for use in his business, he never intended to use the whole site for that purpose. In view of his initial application for planning permission and the fact that he never intended to live there himself, the erection of the house for sale could be regarded as a venture in the nature of trade and acquisition of the site could be regarded as a step in the trading transaction. Accordingly, there was evidence before the Commissioners justifying their conclusion that the gain on disposal of the site was assessable under Income and Corporation Taxes Act 1988Sch. D, Case I. (Lionel Simmons Properties Ltd. (in liq.) & Ors. v. I.R. Commrs. TAX(1980) 53 T.C. 461 and Taylor v. Good (H.M.I.T.) TAX(1974) 49 T.C. 277, considered.)
3. There were no findings of fact that the taxpayer had acquired the property in part to provide premises for his business and in part for development and resale as a separate trading transaction, and since that was not contended for before the Commissioners the case would not be remitted for an apportionment to be made.
1. At a meeting of the Commissioners for the general purposes of income tax for the Division of Macclesfield held on 3 October 1986 William Brian Kirkham ("the taxpayer") appealed against estimated assessments as follows:
| £ | ||
| 1982-83 | Sch. D, Case I building developer | 91,000 |
| 1982-83 | Sch. D, Case VI (Income and Corporation Taxes Act 1970, sec. 488) | 91,000 |
2. Shortly stated the questions for determination were as follows:
Whether the profit on the sale of property known as Havannah Mills, Eaton, Congleton, Cheshire in the year 1982-83 was assessable underIncome and Corporation Taxes Act 1988Sch. D, Case I as a trade within the meaning of Income and Corporation Taxes Act 1970 section 109sec. 109 of the Income and Corporation Taxes Act 1970 or alternatively assessable under Income and Corporation Taxes Act 1988Case IV of Sch. D as a transaction of land in accordance with the provisions of Income and Corporation Taxes Act 1970 section 488sec. 488 of the 1970 Act.
3. The taxpayer was represented by Mr. L.M. Horner of Messrs. G.H. Burgess and Co., solicitor. Mr. N.H. Williams, H.M. Inspector of Taxes, appeared in person.
The following persons gave evidence:
the taxpayer; Mr. Noel Fryer, chartered accountant of Messrs. Noel Fryer, Bailey, Smith and Co., and Mr. John Edward Teagle, H.M. Inspector of Taxes.
4. [Paragraph 4 listed the documents proved or admitted before the Commissioners.]
5. The Commissioners found the following facts:
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(i) From June 1974 to November 1982 the taxpayer worked on his own account as a general dealer and demolition contractor doing a limited amount of farming as well. During this period of time the work which the taxpayer carried out as part of his business included plant hire sub-contract work, levelling, draining and ditching.
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(ii) The taxpayer and his family lived at Purdy House, 81 Rudyard Road, Biddulph Moor, Stoke on Trent from June 1974 until they moved into Sandy Lane Farm, Giants Wood Lane, Hulme Walfield, Congleton, Cheshire in or about November 1982.
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(iii) While living at Purdy House the taxpayer experienced difficulties with the local authority over the storage of demolition materials at his mother's address at Fairview, Biddulph Moor, Staffordshire.
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(iv) An opportunity presented itself to the taxpayer to carry out demolition works at Havannah Mills, Congleton, Cheshire for a Mr. Radivan. The site was acquired principally to provide office and storage space for the taxpayer's demolition and plant hire business. The contract involved the demolition of one of the two mills which were on site, together with five cottages and some outbuildings. The site continued to be used in these various ways until its sale in October 1982.
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(v) After the contract has been concluded the owner of Havannah Mills offered to sell the taxpayer what was left, which by that time comprised of one remaining mill and ten acres of adjoining land. Havannah Mills was purchased in the taxpayer's sole name for the sum of £17,000 by a conveyance dated 9 May 1978. Of the purchase price £8,000 was left outstanding under a private mortgage with the vendor, Mr. Radivan. Subsequently the taxpayer used the site for the storage of materials for use in connection with his business. He used part of the mill as his office. He grew a few crops on the land and bought a few calves for fattening up for resale; but the level of his farming activities in this regard were very limited to the extent that they were never recorded in his books of account.
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(vi) Subsequently in or about October 1978 the taxpayer applied for planning permission for the erection of an agricultural workers' dwelling at Havannah Mills. That application was refused.
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(vii) A further application was submitted to the local planning authority and outline planning permission was granted on 22 August 1980 for the erection of an industrial/agricultural dwelling house for the taxpayer at the Old Mill, Havannah Lane, Eaton. One of the conditions to which the planning permission was made subject was that the permission should enure for the first occupancy of the dwelling house by the taxpayer (then living at Purdy House, Rudyard Road, Biddulph...
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Kirkham v Williams (Inspector of Taxes)
...was not an adventure in the nature of trade. 2 The facts are fully stated or referred to in the judgment of Mr Justice Vinelott [1989] S.T.C. 333, where the case stated is also set out in full. I will restate the facts so far as the arguments advanced on this appeal make it necessary to do......