Watkins v Kidson (HM Inspector of Taxes)
| Jurisdiction | Scotland |
| Judgment Date | 21 June 1979 |
| Date | 21 June 1979 |
| Court | Court of Session (Inner House - First Division) |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Capital gain tax - Assets held on 6 April 1965 - Sale of land in United Kingdom reflecting development value - Land acquired before 6 April 1965 and disposed of after that date without planning permission -Whether Finance Act 1965 (c 25), Sch 6, para 23(1)(b), could apply.
In 1962 the taxpayer inherited 22 acres of farmland (then valued at £1,581), which was at all times used by him as agricultural land up to his sale of that land in January 1972 for £264,000. At no time throughout his ownership of the land was planning permission in force authorising any development thereof. In October 1971 the planning authority published a proposal to zone an area, which included the 22 acres, for private development and residential use, but conditional planning permission for residential development was not granted in respect of that area until July 1973. The taxpayer, appealing to the Special Commissioners against a capital gains tax assessment raised on the basis that para 23 of Sch 6, Finance Act 1965, applied, contended that although para 23(1)(a) applied, para 23(1)(b) could not apply because at the date of disposal it was already unlawful to use the land otherwise than as agricultural land (there being no planning permission then in force to develop the land), and it could not therefore then "become" unlawful to carry out any development in, on or over the land within the meaning of the sub-paragraph. The Commissioners, deciding that para 23(1)(b) could apply, referred the case to the Lands Tribunal under s 47(1), Taxes Management Act 1970, for the market value of the 22 acres to be determined.
The Chancery Division, dismissing the appeal, held that the Special Commissioners were correct in deciding that para 23(1)(b) could apply to the said land. The fact that it was already unlawful to carry out development on the land because there was no planning permission did not prevent postulation of the change required by para 23(1)(b) which was that all development (with the exception of the minor development referred to therein), whether with or without planning permission, was unlawful.
The Court of Appeal, unanimously dismissing the appeal, held that the decision of Fox J. should be affirmed.
Held, in the House of Lords, unanimously dismissing the appeal, that para 23 was capable of applying to the Appellant's land.
Note: Paragraph 23(1)(b), Sch 6, Finance Act 1965, was amended by s 48(3), Finance Act 1974.
Stated under the Taxes Management Act 1970, s 56, and regn 10(3) of the Capital Gains Tax Regulations 1967 by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 10 December 1975 and 3 May 1976 William Henry Watkins (hereinafter called "the Appellant") appealed against the following assessment to capital gains tax: 1971-72 £258,961.
2. Shortly stated, the question for our decision was whether para 23 of Sch 6 to the Finance Act 1965 can have any application to land in the United Kingdom acquired before 6 April 1965 and disposed of without planning permission after that date.
3. The appeal was argued on the basis of a statement of agreed facts which was in these terms:
(2) By a contract of sale dated 26 January 1972 and completed on 28 February 1972 the Appellant sold 22 acres of agricultural land to West London Estate Developments Ltd. for £264,000 (i.e. for £12,000 per acre).
(3) The 22 acres formed part of 122 acres known as Westhill Farm, in the Borough of Brackley, Northamptonshire, which were farmed by the Appellant. He had inherited Westhill Farm together with other farm land on the death of his father on 8 January 1962. For estate duty, the value was agreed at £71.89p per acre, and therefore, the value attributable to the 22 acres was £1,581.
(4) In September 1962, the Northamptonshire County Council submitted a town map for the Borough of Brackley to the Minister of Housing and Local Government, which he approved in June 1965. This provided (inter alia) for a population growth of the Borough from 3200 persons in 1962 to 5000 by 1981. In October 1971, the Council published a report entitled "Brackley Development Proposals" which provided for a further growth in the then population from about 6000 persons to 8400 by 1981 and to 10,800 by 1986. For this purpose, the plan proposals zoned a further area for residential use and mainly private development consisting of some 223 acres in the north-west of the Borough, which included the 22 acres sold by the Appellant under the contract for sale. The proposals had no immediate legal effect; in particular they did not eliminate the need to obtain planning permission before residential development could be carried out.
(5) At all times up to and including 26 January 1972 (the date of the contract for sale) the 22 acres were used as agricultural land, and no planning permission was in force authorising any development thereof.
(6) On 24 January 1972, however, a planning application for residential development (including shops, school and public open space) was made in relation to an area of land which included the 22 acres by Brackley Borough Council and the Appellant. On 4 July 1973 this application was approved subject to conditions.
(7) On 18 September 1972 a capital gains tax assessment for the year 1971-72 in the sum of £258,961 (which is the subject of this appeal) was made upon the Appellant mainly in relation to the gain arising on the disposal of the 22 acres under the contract for sale of 26 January 1972.
(8) This assessment was made on the basis that para 23 of Sch 6 to the Finance Act 1965 applied to the disposal of the 22 acres on 26 January 1972.
(9) The Appellant denies that the said para 23 has any application to the disposal of the 22 acres.
(10) In so far as the prospect existed of planning permission being granted for any development of the kinds specified in Sch 3 to the Town and Country Planning Act 1962, that prospect did not materially influence the market value of the land.
(11) The price of £264,000 for which the 22 acres were sold, reflected the expectation that the planning authorities would be willing to grant planning permission authorising residential development of the land (which is not a type of development specified in Sch 3 to the Town and Country Planning Act 1962). If there had been no prospect of obtaining planning permission for any development (other than any type of development specified in the said Sch 3) the market value of the land would have been substantially less than £264,000.
4. In the course of argument the following cases were cited to us as illustrating the proposition that development of land carried out without permission is unlawful:
Attorney-General v. Smith [1958] 2 QB 173;L.T.S.S. Print and Supply Services Ltd. v. Hackney Borough Council and The Secretary of State for the Environment [1976] 2 WLR 253.
5. It was contended on behalf of the Appellant that:
(a) the inclusion in para 23(1)(b) of the words "…if, immediately before the disposal, it had become unlawful to carry out any development in, on or over the land…" indicate that the paragraph presupposes a case where immediately before the disposal it was in fact lawful to carry out development of the land, and requires the court to assume a change from that actual state of affairs to a hypothetical state of affairs in which it was unlawful to carry out development;
(b) since there was no planning permission in force authorising development of the 22 acres, it was in fact unlawful to carry out development of the land immediately before the disposal, and therefore it was logically impossible to make the assumption postulated by para 23(1)(b);
(c) since para 23 can only apply at all in cases where the assumptions postulated by it can logically be made, and since one of those assumptions cannot logically be made in this case, para 23 does not apply to the disposal by the Appellant;
(d) therefore the Appellant's chargeable gain fell to be computed on the straight line apportionment basis prescribed by para 24.
6. It was contended on behalf of the Inspector of Taxes that:
(a) paragraph 23 applied to all land in the United Kingdom if the conditions specified in para 23(1)(a) and (b) were complied with. There was no dispute that sub-sub-para (a) had been complied with;
(b) whether para 23(1)(b) was complied with in any case depended upon whether the disposal consideration for the land exceeded the market value of the land ascertained in accordance with the assumption stated in para 23(1)(b);
(c) under s 47(1) of the Taxes Management Act 1970 all questions as to the value of land had to be referred to the Lands Tribunal. The question of what was the market value of the land in question on the statutory assumption therefore had to be referred to the Lands Tribunal. The Lands Tribunal was the judicial body to ascertain what was the meaning in law of the statutory assumption, because this matter arose only in relation to the market value of the land;
(d) if and in so far as it was necessary before the Special Commissioners to consider the meaning of the statutory assumption in para 23(1)(b), the actual position in relation to planning permission was irrelevant. The statutory assumption required that "hope" value was to be ignored, and it was to be assumed that development other than development of the kinds specified in Sch 3 to the Town and Country Planning Act 1962 was, and would continue to be, unlawful.
7. We, the Commissioners who heard the appeal, took time to consider our decision and gave it in writing on 12 January 1976 as follows:
For the Inspector of Taxes it is urged in effect, that the scheme of Part II of Sch 6 of the Finance Act 1965, which deals with...
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... ... The purpose of the provision was explained thus by Lord Wilberforce in Watkins v. Kidson 53 T.C 117 at page 129: "That paragraph is inserted mainly in order to deal with land which acquires a development value after 1965. This ... ...