JurisdictionUK Non-devolved
Judgment Date26 July 2021
Neutral Citation[2021] UKFTT 270 (TC)
CourtFirst Tier Tribunal (Tax Chamber)

[2021] UKFTT 270 (TC)

Judge Aleksander


David Southern QC and Michael Avient, counsel, instructed by JS & Co LLP, chartered certified accountants, appeared for the appellant

Simon Pritchard, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents

Income tax and Capital gains tax – Sale of serviced building plots in grounds of Grade 1 listed building – Sale proceeds used for restoration of listed building – Whether trading or capital gain – Appropriation of land from capital to trading stock – Principal private residence relief – Extent of permitted area of garden and grounds – Whether land denatured by construction works – Whether conservation deficit is deductible expense – Whether trust impressed on sale proceeds – Imputed market value on non-arm's length disposal – ITTOIA 2005, s. 5 – TCGA 1992, s. 15, 161, 222.

The FTT found that building plots in the ground of a derelict manor house sold to finance its restoration had been appropriated to trading stock and that private residence relief was not available on the appropriation because the plots had ceased to be garden or grounds and were not within the permitted area.


The Appellant (Mrs Whyte) purchased Bunny Hall (the Hall) and estate (the Estate) in July 2001 using funds lent by her husband, Mr Whyte. The Hall is a Grade 1 listed mansion house with eleven bedrooms. The Estate comprised (in 2001) 17 acres although Mrs Whyte later purchased more land. Mrs Whyte wished to restore the Hall (barely habitable in 2001). Mr Whyte was a builder and property developer who had run into financial difficulties in the past and was a discharged bankrupt and Mrs Whyte had purchased the Hall and Estate in her own name to keep their financial affairs separate. Mrs Whyte had also previously been employed in one or more of her husband's property businesses. Mrs Whyte's husband then negotiated an “enabling development” with English Heritage and the local borough council (RBC). This was because the costs of restoring the Hall were estimated to exceed its value when restored by approximately £1m and therefore English Heritage were willing to sanction the development of six building plots within the grounds to realise further funds in return for an undertaking to restore the Hall. Mrs Whyte claimed that she was not aware of the possibility of an enabling development until after she had purchased the Hall. In March 2002, Mrs Whyte and her family moved into the only habitable part of the Hall (a flat created by a former owner). Mr Whyte's building company undertook the restoration work on the Hall. In December 2003, planning permission was obtained for the six plots, the agreement with RBC and English Heritage (the s. 106 agreement) was executed and Mrs Whyte sold three of the plots to her husband's building company. These were “serviced plots” rather than bare land, meaning that all utility services were in place. Between March 2004 and March 2006, a further two plots were sold to Mr Whyte's building company (for £215,000 and £350,000 respectively) and the sixth plot was sold to a third party (Mr Bailey) for £100,000. These plots were also serviced and some groundworks had been completed. Between 2007–2009, attempts were made to sell the Hall and Estate (but unsuccessful because of the financial crisis). Mrs Whyte later purchased another (substantial) period property (Stanford Hall) in 2007 set in 360 acres of protected parkland and she and her family moved in and occupied as their main residence. Mr and Mrs Whyte also engaged with English Heritage and the local council regarding the possibility of an enabling development to fund restoration of this property. However, in 2011 it was sold to an unrelated purchaser and the family moved back to the Hall.

Mrs Whyte filed self-assessment returns for the two tax years concerned showing the disposal of all six plots qualifying for private residence relief (PRR). Following enquiries HMRC issued closure notices adjusting the returns to include trading profits subject to income tax of c. £483k in total or, in the alternative, capital gains liable to capital gains tax of c. £454k in total, although both amounts were reduced downwards following review.

The following issues fell to be determined:

  • Could the disposals of the six plots be treated as part of the same overall transaction as her renovations to the Hall (Single Overall Transaction)?
  • Were the disposals of the six plots adventures in the nature of a trade for income tax purposes (Trading)?
  • Was private residence relief (PRR) available either on appropriation of the plots to trading stock or sale (PRR)?
  • Was the conservation deficit deductible from any profit or gain (Offset of Conservation Deficit)?
  • Did Mrs Whyte hold the proceeds of disposal of the six plots on trust (Disposal Proceeds held on Trust)?
  • Was there an overriding public interest consideration requiring the disposals to be considered in a particular way (Public Interest)?
  • Was the disposal of plot 6 on an arm's length basis (Disposal of Plot 6)?

The Tribunal judge began by commenting on the lack of documentary evidence, the fact that Mr Whyte did not give evidence (which led him to believe that important evidence was being withheld) and his view that Mrs Whyte was not a credible witness. He therefore drew inferences from the reliable evidence available, in particular dismissing Mrs Whyte's assertions that she purchased the Hall and Estate because of her interest in historic buildings and with no plans as to how she would finance the restoration and concluding that the overall plan had been for her to own the property (to safeguard it from financial risk associated with Mr Whyte's various businesses) and for Mr Whyte to undertake and fund the renovation through his business and for his business to generate profits from buying and selling houses on the six plots. Each of the issues were then examined:

Single overall transaction

Counsel for Mrs Whyte argued that there was one composite transaction encompassing the restoration of the Hall and the enabling development of the six plots to finance it and that the restoration of the Hall was not a commercial activity, no trade with a view to profit was carried on, no chargeable gain could be realised and Mrs Whyte was contractually bound to apply the proceeds of the six plots in restoring the Hall. The Tribunal found that it was factually incorrect that Mrs Whyte was bound to apply the proceeds in restoring the Hall; she was only obliged to carry out the restoration work and indeed the terms of the s. 106 agreement made clear that all commercial risks and rewards fell on the developer who therefore did have the opportunity to make a commercial profit. Furthermore, Counsel had not explained what was meant by “one composite transaction” for the purposes of income tax and capital gains tax and (for completeness). Furniss (HMIT) v Dawson [1984] BTC 71 was of no application because there was no series of pre-ordained transactions. The Tribunal therefore concluded that there was no “one composite transaction”.


The Tribunal cited the trading “tests” set out by HMRC at BIM 20205 as a useful starting point. HMRC's submissions were that the facts as applied to the relevant tests demonstrated that with was a “case of unequivocal trading” but that if there was any doubt, the greatest weight should be place on intention and that there was a clear intention to sell the six plots at the time the Estate was purchased. Counsel for Mrs Whyte also cited the trading tests (and drew opposite conclusions) but primarily argued that the Hall was acquired to make it into a family home and that the only purpose of selling the six plots was to fund the renovation, thus the dominant motivation was capital not trading. The Tribunal concluded that the acquisition of the Hall and Estate could not be split into a trading and non-trading part and that the pre-dominant intention at the time of acquisition was capital in nature. However, it had always been intended that the enabling development should take place and that Mr Whyte should have the opportunity to generate profits from building houses on the plots and selling them. In fact Mrs Whyte had commenced developing the plots herself (rather than simply obtaining planning consent before selling the plots) and she also had a history of involvement in building projects and later contemplated a similar arrangement regarding Stanford Hall. The disposal of the plots was therefore a trading transaction and the plots must therefore at some point have been appropriated to trading stock prior to sale. The Tribunal determined that this had taken place when the boundaries of the plots were identified and submitted to RBS in May 2003, when there was a disposal for capital gains tax purposes under TCGA 1992, s. 161.

Private residence relief

The Tribunal had to consider whether PRR was available on the appropriation to trading stock (or alternatively if their conclusion in relation to the trading issue were incorrect, on disposal of the plots). There were two principal issues: whether the plots had ceased to be part of the garden and grounds (because they became a development site no longer of an appropriate character (denatured)) and whether they fell within a larger “permitted area” required for reasonable enjoyment of the dwelling house.

The question as to garden and grounds potentially had to be determined both at the time of appropriation to stock and on disposal of the plots. The Tribunal found the land had been “denatured” prior to either of these events because groundworks had already commenced according to the schedule of works prepared by Mr Whyte's building company. The submission by Counsel for Mrs Whyte that the landscaping work could have been subsequently “undone” was dismissed as an irrelevant consideration because any building work can be subsequently demolished. The Dickinson...

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