Capital transfer tax — Right to buy — Housing Act 1980 — Property subject to charge securing discount repayment — Whether Lands Tribunal has jurisdiction — Whether question of value or of law — Whether Crossman principles applicable — Case remitted
On March 4 1983 the deceased, Mrs Alexander, acquired a long leasehold interest in a flat, 44 Speed House, Barbican, London, from the City of London Council. The lease was granted for a consideration of £35,400 pursuant to the right to buy provisions of the Housing Act 1980; the consideration reflecting a statutory discount of £24,600. The lease contained covenants by the deceased tenant to pay the landlords the relevant percentage of the discount if, within five years of the grant, there should be a disposal falling within the terms of the covenant: section 8(3) of the 1980 Act providing for such repayment, which was also secured by a charge. The deceased died on January 17 1984.
Section 22(1) of the Finance Act 1975 provides for a tax on the value of the deceased’s estate immediately before death. Section 38 of the 1975 Act provides that the value of property shall “… be the price which the property might reasonably be expected to fetch if sold in the open market at that time …”. The tribunal determined the value of the property as £63,000 without regard to the liability to repay the discount and decided that they had no jurisdiction to decide the extent of the liability in respect of the charge which did not effect the open market value. The commissioners appealed by way of a case stated. Meanwhile, the Special Commissioner of Tax decided (May 7 1990) that the amount of the deduction attributable to the obligation to repay the discount was a question of law and not of land valuation and therefore within the jurisdiction of the special commissioners, and that the liability to repay the discount should be taken into account as a current liability at death under Schedule 4 to the 1975 Act.
Held The case was remitted to the Lands Tribunal.
1. The liability to repay the discount was contained in a covenant in the lease and secured by a charge; being charged on the property it was an incumbrance and should be taken into account to reduce the value of the property: see the 1975 Act, Schedule 10, para 1. The value of the flat, taking into account the liability to repay the discount, was a question as to the value of the land and within the jurisdiction of the tribunal under Schedule 4, para 7(4).
2. The entity to be valued is the lease taking into account the obligations of the deceased and her successors in title to repay the discount.
3. The principles in Commissioners of Inland Revenue v Crossman [1937] AC 26 are applicable to section 38 of the 1975 Act. In valuing the lease the tribunal is required to determine the amount which, on the hypothetical sale, a person would be willing to pay to acquire the lease held by the deceased subject to the obligation which would fall on the hypothetical purchaser to make a repayment to the landlord in the event of a disposal within section 8(3) of the 1980 Act, but on the footing that his own hypothetical acquisition did not give rise to such a disposal.
Nicholas Warren (instructed by the solicitor to the Inland Revenue) appeared for the appellants; and the respondent, Andrew Alexander, executor of Mrs D E Alexander, deceased, appeared in person.