Oram (HM Inspector of Taxes) v Johnson
| Jurisdiction | England & Wales |
| Judgment Date | 11 February 1980 |
| Date | 11 February 1980 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Capital gains tax - Allowable expenditure on disposal of asset - Sale of cottage - Whether owner entitled to deduct value of own skill and labour in enhancing value of asset - Finance Act 1965, Sch 6, para 4(1)(b), now Capital Gains Tax Act 1979, s 32(1)(b).
The taxpayer purchased a cottage in 1968 and sold it in 1975: it had not been his only or main residence, and a substantial chargeable gain resulted. In computing that gain the taxpayer claimed to deduct an estimated figure of expenditure in respect of the value of his own skill and labour in carrying out improvements and enlargement works on the cottage: the deduction so claimed was £1,700, being £1 per hour for the estimated time of 1700 hours.
The General Commissioners held that the £1,700 was deductible. The Crown demanded a Case.
The Chancery Division, allowing the Crown's appeal, held that "expenditure" in para 4(1)(b), Sch 6, Finance Act 1965, means money, or money's worth in the sense of something which diminishes the total assets of the person makng the expenditure and does not include the value of an individual's own skill and labour.
Stated under s 56 of the Taxes Management Act 1970 by the Commissioners for the General Purposes of the Income Tax for the Division of Abingdon in the County of Oxford for the opinion of the High Court of Justice.
1. At a meeting of the said Commissioners held on Monday 11 December 1978 Keith David Bebb Johnson of 6 Fairlawn Wharf, Abingdon in Oxfordshire (hereinafter called "the Respondent") appealed against an assessment to capital gains tax made upon him for the year 1975-76 in the amount of £9,250.
2. The following facts were proved admitted or agreed:-
(2) On 10 May 1968 the Respondent purchased a freehold dwelling-house known as Yew Tree Cottage, Linton, Ross-on-Wye, Herefordshire.
(3) The cost of acquisition of the said property was £2,250.
(4) The Respondent sold the said property on 29 November 1975 at a price of £11,500.
(5) The said property was not at any time the only or main residence of the Respondent.
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(6) Between the said purchase and sale of the said property by the Respondent, he carried out extensive improvement and enlargement works to the said property which transformed it from a derelict, uninhabited two-bedroomed cottage with no modern amenities to a desirable four-bedroomed cottage with all modern amenities.
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(7) The following allowable expenditure was agreed by the Inland Revenue as deductible from the total capital gain arising upon the said sale:-
£
(a) Expenses upon acquisition comprising legal costs
90
(b) Payments made by the Respondent for materials and hired labour for which records were kept and invoices had been produced
980
(c) Expenses upon disposal comprising legal costs and estate agents' fees
431.
3. It was contended by the Respondent that the under-mentioned items of further expenditure which had been incurred by him wholly and exclusively on the asset and being expenditure reflected in the state or nature of the asset at the time of disposal, qualified as deductions from the total gain and that H.M. Inspector of Taxes had been wrong in law for disallowing such items:-
(a) £2,220 being the Respondent's estimated value of work during the two years following the acquisition of the cottage upon labour incurred by him in carrying out the works on the said cottage between acquisition and disposal. In support of this amount, the Respondent produced schedules giving a summary of the condition of the cottage on acquisition (exhibit A) and on disposal (exhibit B) and an itemised list of the man-hours expended in carrying out the improvement and enlargement works (exhibit C). Of the 2220 hours thus claimed, the Respondent stated that between 400 and 500 represented his estimate of the employment by him by way of casual work of local labour, his son and friends to whom he estimated he had paid an average of £1 per hour. The remaining 1720 or 1820 hours represented the value of his own personal labour priced at £1 per hour which was contended to be a reasonable sum and much less than would have been paid if commercial labour had been hired to achieve the same enhancement in the value of the said cottage as had been in fact achieved by these methods;
(b) £500 being the Respondent's estimate of the value of further payments and labour expended made by him after the initial three-year period to local craftsmen and for casual labour. No receipts or other records were available because the records had lapsed, for the reason that this work was over a long period and the assistance was obtained and paid for as and when required and on a casual, friendly, basis. The Respondent therefore claimed that as all of the above-mentioned expenditure was actually incurred by him and had beyond doubt resulted in the enhancement of the value of the cottage by the time of its disposal, it was unreasonable that all or any of such expenditure should have been disallowed in computing the chargeable...
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