Shaw (as nominated member of TAL CPT Land Development Partnership LLP)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 April 2019 |
| Neutral Citation | [2019] UKFTT 280 (TC) |
| Date | 26 April 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 280 (TC)
Judge Philip Gillett, Jane Shillaker
Julian Ghosh QC and Emma Pearce, counsel, instructed by Ashurst LLP, appeared for the appellant
Larissa Mulder, Officer of HMRC, appeared for the respondents
Income tax – Former industrial buildings allowance – Claims for writing-down allowances and balancing allowances – Appellant attempted unsuccessfully to let buildings former owner had ceased to use – Buildings sold without having been brought back into use – Whether appellant's period of ownership period of temporary disuse – No – CAA 2001, s. 285, 315 – Appeal dismissed.
The FTT held that the Appellant's period of ownership of industrial buildings, during which the buildings remained unused despite its best efforts to let them, could not constitute a period of temporary disuse under former CAA 2001, s. 285, and hence that it was not entitled to industrial buildings allowances (“IBAs”) in respect of its capital expenditure on those buildings.
In 2004, the Appellant, a limited-liability partnership, acquired a long leasehold interest in industrial and commercial buildings in an enterprise zone. The buildings had fallen out of use after the former owner's enterprise became unviable. During its period of ownership, the Appellant made ongoing efforts to market the buildings, before finally selling its interest on 5 April 2007. It claimed IBA writing-down allowances in 2004–05 and 2005–06 and balancing allowances on sales of the buildings in 2005–06 and 2006–07. For procedural reasons, the appeal concerned the years 2004–05 and 2006–07 only.
Essentially, the issue before the Tribunal hinged entirely on the interpretation of “temporary disuse” in former CAA 2001, s. 285. This provided that if a building was [in use as] an industrial building immediately before a period of temporary disuse, it was to continue to be treated as an industrial building throughout the period of temporary disuse, and was not to be regarded as ceasing altogether to be used merely because it fell temporarily out of use. When an industrial building ceased entirely to be used without being demolished or destroyed, this gave rise to a balancing event under former CAA 2001, s. 315(1)(d).
Balancing allowances on the occurrence of a balancing event were withdrawn with effect from 21 March 2007.
The Appellant contended that in determining whether a period of disuse of a building was temporary or permanent, particular weight should be given to the owner's intention for the building at any one time, as ascertained by an objective assessment of the evidence. Since it had consistently intended and made active efforts during its period of ownership to bring the buildings back into use until it actually ceased to do so, the period of disuse was temporary. The balancing event occurred either when its intention to bring the buildings back into use ceased (November 2005 in some cases and October 2006 in the other cases) or when the buildings were sold.
HMRC contended, on the other hand, that a period of disuse could be “temporary” only if it occurred between two periods of use. If buildings that were capable of use were never in fact brought back into use, the period of disuse could not be considered as “temporary”. It followed that the buildings had ceased permanently to be used before the Appellant had acquired them and the Appellant was therefore not entitled to IBAs at any time. Alternatively, if the owner's intention was relevant, there was no provision in former CAA 2001, s. 315 for a change of intention to constitute a balancing event. This had to be the earlier of demolition and sale. In the case of the majority of the buildings, this was their sale in April 2007, by which date balancing allowances were no longer available.
The Tribunal considered that both rival interpretations posed problems. However, there was nothing in the legislation or case law to support the Appellant's contention that the taxpayer's intention should be the determinative factor in interpreting the meaning of “temporary disuse”. HMRC's argument that there had to be a period of actual use both at the beginning and end of a period of temporary disuse, whilst it could not be an inviolable rule in all circumstances, made a “great deal of sense”.
The problem with this argument was that it necessitated a “wait and see” approach to the claiming of IBAs, since it made claims for IBAs to hinge ultimately on subsequent events, which ran counter to the self-assessment régime. The Tribunal considered, however, that this was another example of a failure in the Taxes Acts of the legislation to anticipate all possible circumstances.
On balance, the approach put forward by HMRC was to be preferred, albeit that it involved a degree of hindsight; no alternative approach made sense in the context of the legislation. On this reading, the buildings had ceased permanently to be used before the Appellant had acquired an interest in them; consequently, when it sold the buildings no balancing events arose.
HMRC's position on temporary disuse is indeed as argued before the Tribunal (see Capital Allowances Manual, para. ), and one must agree that its interpretation makes more sense, although it is surprising that the question does not seem to have come before the courts previously.
As the Tribunal observed, to make the taxpayer's intention the decisive factor would provide a “tax-avoider's charter” where the owner's intentions could change a number of times so generating balancing allowances as the building went into and out of temporary use.
[1] The appellant company, TAL CPT Land Development Partnership LLP (“TAL”) appealed against the following closure notices and amendments to the partnership statement:
| Year | Description | Date of Issue | Amount |
| 2004–05 | Closure notice and amendment | 3 Dec 2015 | 658,846 |
| 2005–06 | Partnership discovery assessment | 19 Nov 2009 | 2,555,820 |
| 2006–07 | Closure notice and amendment | 3 Dec 2015 | 10,315,324 |
[2] The figures shown above relate to the amount of Industrial Building Allowance (“IBA”) and balancing allowances claimed and disallowed in the partnership computation of allowable losses as a consequence of HMRC's decisions. The consequential effect is to reduce the amount of the partnership's loss for the periods and as a result reduce the amount of loss that is available to be claimed by the partners (to be set against other taxable income) on their personal returns. This in turn increases the amount of tax payable by the partners. HMRC estimates that the tax at stake is in the region of £5m.
[3] The initial statement of case filed by HMRC did not contain any significant pleadings as regards the discovery assessment.
[4] On 7 March 2019, HMRC filed an application to amend their statement of case to include pleadings on the discovery issue for 2005–06 and on 15 March 2019, the appellant filed detailed submissions in opposition to this application.
[5] On 2 April 2019, the Tribunal issued a Direction refusing to amend the respondent's statement of case for the reasons set out in the appellant's submissions opposing HMRC's application, which were essentially that it was too close to the hearing date to introduce new pleadings for which the appellant would be unable to prepare properly. This naturally led to the outcome that HMRC would be unable to argue their case fully in respect of the discovery issue, in accordance with the decision in Burgess; Brimheath Developments Ltd v R & C Commrs [2015] BTC 533.
[6] Therefore, on 4 April 2019, HMRC made an application to sever the appeal relating to the IBAs, for the years 2004–05 and 2006–07, and that relating to the discovery assessment, for the year 2005–06. These had in fact originally been two separate appeals which had been joined by direction of the tribunal on 2 June 2016.
[7] This severance application was heard before the hearing of the substantive appeal regarding the IBAs, at which time the parties came to an agreement that the two appeals should be severed, subject to certain conditions regarding the extent to which the return for 2005–06 could be reopened.
[8] This application is now the subject of separate directions.
[9] The remainder of this decision now addresses only the appeals against the closure notices and assessments issued in respect of 2004–05 and 2006–07 and, specifically, the IBAs claimed in the returns for those years.
[10] TAL claimed capital allowances (specifically, IBAs under the Capital Allowances Act 2001 (“CAA”)) in respect of accounting periods ended 31 March 2005 to 31 March 2007. The appellant, Mark Shaw, as nominated member of TAL, filed partnership tax returns for the tax years 2004/5 to 2006/7 in which the partnership's taxable profits were reduced by the IBAs claimed.
[11] HMRC disallowed TAL's claims to IBAs on the basis that the buildings in respect of which IBAs were claimed did not meet the definition of “industrial buildings” in s271 CAA. In particular, HMRC argue that the buildings were not in a state of “temporary disuse”, within s285 CAA, at any time during TAL's period of ownership.
[12] Alternatively, HMRC argue that if the buildings were in a state of temporary disuse during TAL's period of ownership, a balancing event occurred in April 2007 in respect of some of the buildings (on their sale), which was after balancing allowances had been withdrawn (on 21 March 2007). Consequently, HMRC argue, on this basis, that the claims for IBAs in respect of the 2004/5 tax year should be allowed, but the claims for IBAs (specifically, balancing allowances) in respect of the year 2006/7 should be disallowed.
[13] The appellant contends that the claims to IBAs made on behalf of TAL should be allowed on the basis that the buildings in question were industrial buildings. In particular, that the buildings...
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