VAT — Transfer of land — Land owned by partnership — Transfer purporting to be of only one partner’s interest — Correct construction of transaction — Whether taxable supply — Appeal dismissed
D and his second wife, A, were partners in the appellant partnership, which was set up to purchase a property near Peterborough. Upon purchasing the land, the partnership gave notice to the respondent commissioners, pursuant to para 2(1) of Schedule 10 to the Value Added Tax Act 1994, to waive exemption from VAT.
In July 1999, D and A transferred a 2.5 acre parcel (the red land) in the south-east corner of the property to D and his first wife B, for a stated price of £125,000, “to hold on trust for themselves as tenants in common in equal shares” (clause 11). Clause 12 stated that both the interest transferred and the consideration paid were exclusively in respect of A’s interest in the property, “no transfer or dealing having taken place as a result of this transfer in respect of the interest of [D]”.
It was accepted that the proper value of the land at the time of the transfer was £250,000. B paid £125,000 to A, which she in turn paid to the partnership, to which D also paid a similar sum. The two payments were used to reduce the partnership’s overdraft. The partnership’s accounts for the year ending 30 September 1999 showed a sale of the red land for £250,000 as being part of its total sales figures for that period.
The commissioners issued the partnership with a notice of assessment of unpaid VAT, against which it appealed to the Value Added Tax and Duties Tribunal. The tribunal found that the VAT was payable and the partnership appealed. It contended that the transfer of the red land was not a “supply” of that land by the partnership to the transferees within the meaning of section 4 of the 1994 Act, maintaining that it was a sale by A to B of her interest in the red land for £125,000.
Held: The appeal was dismissed.
Clauses 11 and 12 of the transfer were mutually inconsistent. The transfer had not been confined solely to A’s interest in the red land. Prior to the transfer, she had had no separate interest in the land, but had held it with D on trust for themselves as joint tenants in equal shares as part of the partnership assets. As such, the property had been subject to the provisions of section 20(1) of the Partnership Act 1980, and was therefore required to be applied exclusively for the purposes of the partnership. The provisions of clause 12 could be reconciled with the provisions of the remainder of the transfer, and made effective, by construing them as a sale to B of A’s beneficial interest in the red land, for a consideration of £125,000, only after the land had ceased, following the transfer, to be an asset of the partnership. By reason of clause 11, the transfer had been effective also to transfer D’s interest in the red land, so that it was held beneficially by him and A thereafter as tenants in common.
The transfer had therefore conveyed the entire interest in the red land out of the partnership, initially for the benefit of D and A, and, after payment of £125,000, for the benefit of B as to a half-interest. The transfer had enabled the partnership to reduce its overdraft, and was therefore in furtherance of its business. It followed that the transfer had constituted a supply of land, not exempt from VAT, by the partnership to D and A for disposition by them consistently with clause 12.
Eamon McNicholas (instructed by David Barney & Co, of Stevenage) appeared for the appellant; Paul Key (instructed by the solicitor to Customs & Excise) appeared for the respondents.
Sally Dobson, barrister
