Sale of property — Business premises — Capital gains tax — Roll-over relief — One company purchased by another — Chargeable gain arising on sale of old premises — New premises purchased to accommodate both companies — Vacant possession obtained some time after completion of freehold purchase — Whether new premises taken into business use “on” acquisition for purpose of claiming relief — Whether members of group to be treated as single person — Whether separate acquisitions to be treated as one transaction — Taxpayer’s appeal dismissed
The taxpayer was a music publishing company. In 1984 it became a wholly-owned subsidiary of another company. In January 1984 the taxpayer sold its business premises, which gave rise to a chargeable gain of £601,688, and moved into the premises of its parent company while new premises to accommodate both companies were found. In January 1986 the taxpayer acquired the freehold interest in a new property for £950,000. The taxpayer could not obtain vacant possession concurrent with the freehold, since it was purchased subject to a lease and an underlease. The parent company acquired the underlease in September 1986 and both companies moved into the property and traded thereform. Between January and September 1986 the taxpayer received rent from the lessee. The taxpayer made a claim to the tax inspector for the chargeable gain realised on the disposal of its old premises to be “rolled over” into the acquisition cost of the new property under section 115(1) of the Capital Gains Tax Act 1979. That subsection provided that relief was available: “If the consideration which a person carrying on trade obtains for the disposal of, or his interest in, assets … used, and used only, for the purposes of the trade throughout the period of ownership is applied by him in acquiring other assets, or an interest in other assets which, on the acquisition are taken into use, and used only, for the purposes of the trade, and the old assets and the new assets are within the classes of assets listed in section 118…”. The property in the present case came within Section 118. The General Commissioners upheld the Crown’s contention that, although the property had been acquired in January 1986, it had not been used or used only for the purposes of the taxpayer company’s trade until September 1986. Accordingly, it had not been taken into trade use “on” acquisition for the purposes of section 115. The taxpayer appealed to the High Court.
Held The appeal was dismissed.
1. By virtue of section 276(1) of the Income and Corporation Taxes Act 1970 (which dealt with rollover relief in relation to groups of companies) the trades carried on by members of a group of companies were to be treated as a single trade. However, that did not extend to treating the members of a group as a single person.
2. Section 115(1) referred to only one acquisition whereas the taxpayer was asking for two acquisitions to be considered: (1) the acquisition of the freehold by the taxpayer; and (2) the acquisition of the underlease by its parent company. Those two acquisitions could not be regarded together as being one acquisition. Two separate acquisitions by different legal persons could not be regarded as one transaction.
3. It was irrelevant that the company had intended to obtain vacant possession concurrent with the freehold. What mattered was what actually happened.
Ian Richards (instructed by Davenport Lyons) appeared for the appellant taxpayer; and Timothy Brennan (instructed by the solicitor for the Inland Revenue) appeared for the Crown.
