Company buying industrial site and constructing retail unit – Plaintiffs buying unit and claiming capital allowance – Inspector assessing land value to be deducted from capital allowance on basis of value of site after unit constructed – Whether capital allowance should have reflected a land value – Whether land value was value before or after unit constructed – Special commissioner dismissing taxpayer’s appeal – High Court dismissing appeal
In 1984 TBF Thompson (Properties) Ltd (‘Thompsons’) bought a site known as the Imperial Paper Mills. The site was within the boundaries of the NW Kent Enterprise Zone No 2. It was bought by Thompsons for the purpose of its building trade. In October 1987 Thompsons obtained planning consent for the development of the site to an industrial and retail site. Thompsons then decided to trade as property developers and arranged for a retail warehouse, unit E1, to be constructed within the enterprise zone, and within 10 years from the time when the site was first included in an enterprise zone.
On November 2 1993 Thompsons entered into an agreement for a lease with AG Stanley Ltd, which went into possession of unit E1 at a date before March 23 1994 when the formal lease was executed. Also on March 23 1994, but immediately before the execution of the lease, unit E1 was sold by Thompsons to members of a syndicate for the price of £1,131,735. The plaintiffs claimed that each member was entitled to a capital allowance in respect of the contributions made towards the purchase price less a land value of £65,512, being the proportion of the cost of the acquisition of the site of the Imperial Paper Mills. The inspector claimed that the land value should be calculated by reference to the value of the site of unit E1 when it was developed as an industrial building. The special commissioner dismissed the appeal from the inspector and held that the appropriate value to be placed on the land element was £200,000, representing the value of the land at March 1994 with the benefit of planning permission, as a proportionate part of the land originally purchased by the Thompsons. The plaintiffs appealed.
Held The appeal was dismissed.
1. The syndicate as the purchaser of the relevant interest in the land was deemed to have incurred the expenditure of its construction, and for this purpose references to the expenditure on the construction of the unit did not include expenditure incurred on the acquisition of the land on which it stood. Therefore the capital allowances were to reflect a land value.
2. A just apportionment of the part of the price paid which represented the land value and the part which represented the cost of construction could be made by using the formula in section 42(2) of the Taxation of Chargeable Gains Act 1992, which the special commissioner had correctly applied as a guide.
John Walters (instructed by Edwin Coe, London agents for Halliwell Landau) appeared for the plaintiffs; Timothy Brennan (instructed by the solicitor to the Inland Revenue) appeared for the Crown.