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 that had been set up to purchase a property near Peterborough. Following the purchase, 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.
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. Its accounts for the year ending 30 September 1999 showed the sale of the red land for £250,000 as 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. The partnership appealed, contending that the transfer of the red land did not constitute a “supply” of that land by the partnership to the transferees within section 4 of the 1994 Act. Rather, it was a sale by A to B of her interest in the red land for £125,000. The High Court dismissed the appeal: [2004] EWHC 152 (Ch); [2004] PLSCS 28.
The partnership appealed contending that the tribunal and the judge had misconstrued transfer form TR1 as a transfer of the red land in that they had incorrectly “doubled up” the two distinct and legally separate payments of £125,000 to a consideration of £250,000 and the subject matter of the transfer from a half share to the whole of the red land.
Held: The appeal was dismissed.
The tribunal’s findings of fact justified the conclusion that it had reached. No error of law could be found in its construction of TR1. The document, read in its entirety, took effect as a transfer of the whole of the red land as registered at Land Registry, and not merely as a beneficial half-share in it. Moreover, the tribunal had been entitled to rely upon its findings concerning the acquisition and holding of the red land by D and A as an asset of the partnership, the true amount of the consideration for the transfer and the destination of that consideration, which all pointed to a transfer of the whole of the red land as a partnership asset.
Paragraph 8 of Schedule 10 to the 1994 Act did not apply to the facts found. No mismatch was evident between the person making the grant and the person to whom the benefit of the consideration for the grant accrued. The partnership had made a transfer of a partnership asset via D and A, in whom the red land was vested for the purposes of the partnership. The partnership received, via D and A, the full benefit of the consideration for the transfer. Even if, contrary to the tribunal’s conclusion, the transfer had been of a beneficial half-share in the red land by A, as a non-taxable person, para 8 would not apply: the benefit of the consideration of £125,000 for the half-share had been received by A as her separate property. She had then injected it as capital into the partnership.
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.
Eileen O’Grady, barrister
