Payne v Barratt Developments (Luton) Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 18 November 1983 |
| Date | 18 November 1983 |
| Court | Chancery Division |
Chancery Division.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. S. Oliver Q.C. and Mr. W. Massey (instructed by Messrs. Slaughter and May) for the taxpayer company.
Before: Vinelott J.
Corporation tax - Stock in trade - Stock relief - Whether certain properties fell to be treated as stock in trade - Finance Act 1976 section 37Finance Act 1976, sec. 37; Finance Act 1976 schedule 5 subsec-or-para 29Sch. 5, para. 29.
This was an appeal by the Crown from a decision of the Special Commissioners that old, as opposed to newly built, properties owned by the company were stock in trade although the aggregate of the values apportioned to the gardens was excluded from stock relief.
Barratt Developments (Luton) Ltd. is part of the building group. In the course of its trade the company, like others in the group, carries a large stock of land for future development. In respect of this land the company is entitled to stock relief. In 1977 the company introduced a scheme to assist prospective buyers of its new houses. Under the scheme a company in the Barratt group would offer to buy a prospective purchaser's existing house. The company would then sell the old property as soon as practicable in its existing state.
At the beginning of the accounting period in question, the company had no old properties. However, during the period it bought nine; five remained unsold at the end of the period. Of these five three were semi-detached freehold houses with gardens and two were leasehold flats, one a ground floor and the other a second floor flat.
The question for decision by the court was whether the unsold old properties fell to be included in the company's stock in trade.
For the company it was submitted that the legislative intention to be inferred from Finance Act 1976 schedule 5 subsec-or-para 29para. 29 of Sch. 5 to the Finance Act 1976 is to exclude from stock relief land owned by a person who buys it with a view to selling the site for development by others. It was further submitted that land with buildings on it is excluded from stock relief if, and only if, it is in substance bought by a dealer with a view to realising a profit from the value of the site.
For the Crown it was argued that the reference Finance Act 1976 schedule 5 subsec-or-para 29in para. 29(3) to the "substantial reconstruction of buildings" was that it was directed to the case of a developer who buys land for development which includes a building of architectural merit which he cannot demolish but is entitled to reconstruct for some other use provided the exterior is maintained and preserved. The reference in Finance Act 1976 schedule 5 subsec-or-para 29para. 29(3) is intended to ensure that he obtains stock relief for the whole of the land. It was further argued that the decision of the Court of Session in I.R. Commrs. v. Clydebridge Properties Ltd. was distinguishable. Counsel argued that an apportionment must be made between the value of the houses and the value of the sites on which they stand, which, it was submitted, was land within the exclusion.
Held, appeal dismissed.
1. The decision of the Court of Session compelled the conclusion that land within the exclusion from the definition of trading stock comprehends only land which has no building or other structure on it.
2. If it had been the intention of the legislature that in the case of a fully developed site bought by a dealer without any intention of developing it or substantially reconstructing the buildings on it stock relief should not be allowed in respect of the value of the site without the buildings and should be allowed in respect of the value of the buildings alone, then the schedule would have provided machinery for apportionment.
3. Had the question been free from authority the court would have felt inclined to the conclusion that no part of the value of any of the houses or their gardens or the flats qualified for stock relief. At first sight there seemed to be indications in para. 29(2)(b) justifying the conclusion that the word "land" is used in the most comprehensive sense.
1. At a meeting of the Commissioners for the special purposes of the Income Tax Acts held on 22 February 1982 Barratt Developments (Luton) Ltd. (hereinafter called "the Company") appealed against an assessment to corporation tax for the accounting period to 30 June 1979 in an estimated sum of £7,000.
2. The name of the witness who gave evidence and particulars of the documents (all agreed) before us appear from our decision in principle which we delivered in writing on 16 June 1982. Copies of the documents are not annexed hereto as exhibits but are available for inspection by the court if required.
3. The question for our determination, our findings of fact, the contentions of the parties and our conclusion also appear from our decision a copy of which is annexed hereto and forms part of this case. Our decision was partly in favour of the Company and partly in favour of the inspector.
4. Figures having been agreed between the parties, on 18 January 1983 we formally determined the appeal as follows:
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(2) The amounts attributable to the value of the gardens of the three old properties which had gardens are:-
Value apportioned
Total Value
to the garden
3 Neston Way
£14,287
£500
29 Whitebeam Close
£14,725
£800
8 Kingston Avenue
£16,736
£800
(3)
(4) The £2,100 attributable to the gardens does not qualify for Stock Relief.
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(5) The Stock Relief due is thus:-
Close Stock at 30 June 1979
4709,319
less Value of Gardens
2,100
4707,219
less Opening Stock at 1 July 1978
2,399,874
2307,345
less 15% of Relevant Income (£801,883)
120,282
Stock Relief due
2,187,063
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(6) The Company's Corporation Tax computation for its Accounting Period ended 30 June 1979 is:-
Case I Profit after Capital
Allowances
801,883
less Stock Relief
2,187,063
Adjusted Loss
1385,180
less Section 177(2) Relief for current year:
Rent
495
Interest
1547
2,042
Losses available for group relief or carry forward.
1,383,138
(7) Accordingly we discharge the assessment under appeal and declare that the losses available for group relief or carry forward are £1,383,138.
5. Immediately after the determination of the appeal both the Company and the inspector declared to us their dissatisfaction therewith as being erroneous in point of law and in due time required us to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970, Taxes Management Act 1970 section 56sec. 56 which case we have stated and do sign accordingly.
6. The question for the opinion of the court is whether we erred in law in reaching our conclusion.
1. This is an appeal by Barratt Developments (Luton) Ltd. ("the Company") against an assessment to corporation tax for its accounting period ended 30 June 1979. The Company was represented by Mr. S.J.L. Oliver Q.C. The case for the Revenue was presented by Mr. J.G.H. Bates of the Office of the Solicitor of Inland Revenue.
2. The dispute concerns the extent to which the Company is entitled to stock relief under the Finance Act 1976 ("the 1976 Act"). The stock relief provisions in force for the accounting period under appeal are in the 1976 Act, Finance Act 1976 section 37 schedule 5sec. 37 and Sch. 5. The broad effect of those provisions is that a trader is entitled to relief in respect of the amount by which the value of his stock in trade in hand at the end of a period of account exceeds the value of his stock in trade in hand at the beginning of that period. The amount of that excess (subject to a small reduction) can be deducted from his profits for tax purposes. There is, however, a statutory definition of "trading stock" (in Finance Act 1976 schedule 5 subsec-or-para 29para. 29 of Sch. 5) the effect of which is that certain types of trading stock do not qualify for stock relief.
The following are the provisions in Finance Act 1976 schedule 5 subsec-or-para 29para. 29 of Sch. 5 to the 1976 Act which are relevant to this case:
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29
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(2) Subject to the provisions of this paragraph, in this Schedule "trading stock" means property of any description, whether real or personal, being either -
(a) property such as is sold in the ordinary course of the trade, profession or vocation in question, or would be so sold if it were mature or its manufacture, preparation or construction were complete; or
(b) … and includes work in progress.
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(3) Finance Act 1976 schedule 5 subsec-or-para 29Sub-paragraph (1) above does not apply to -
(a) …
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(b) Land, other than such as is ordinarily sold in the course of the trade, profession or vocation only -
(i) after being developed by the person carrying on the trade, profession or vocation, or
(ii) …
(c) …
(4) In Finance Act 1976 schedule 5 subsec-or-para 29sub-paragraph (2) above, references to development are references to the construction or substantial reconstruction of buildings on the land in question…
The Company is a subsidiary in the Barratt Group. In the 1970's the Group discovered that sales of new houses sometimes went off because the potential purchaser was unable to sell his existing house. To combat this the Barratt Group adopted the policy of offering to buy the purchaser's existing house, maisonette or flat at a valuation fixed by an independent expert less 5%, if the purchaser was unable to sell it for a higher price himself. That was known in the Group as the part-exchange scheme. (We shall refer to houses, maisonettes and flats purchased by companies in the Barratt Group in pursuance of the part-exchange scheme as "old properties".) The policy of the Group was to sell the old properties as soon as possible in their existing state.
The Company, in common with the other members of the Barratt Group, operated the part-exchange scheme and in the accounting period under...
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