Shaw v Commissioners for HM Revenue and Customs

Income tax – Industrial building allowance – Buildings ceased to be used by previous owner – New owner intending to let buildings but unable to find tenants – Buildings sold without being brought back into use – Claim for industrial building allowance refused – Appellant appealing – Whether period of ownership amounting to period of temporary disuse – Appeal allowed CPT purchased a long leasehold interest in buildings on a business park designated as an enterprise zone between Glasgow and Edinburgh. Around January 2003, the buildings fell into temporary disuse within section 285 of the Capital Allowances Act 2001. In February 2004, TAL agreed to purchase CPT’s interest. The purchase agreement included an undertaking that two of the buildings would be brought into use within three years of acquiring the site. The purchase was completed in March 2004. Efforts to attract potential tenants failed but some buildings were sold in March 2006 without having been brought back into use. TAL claimed industrial buildings allowance on the basis that, although the buildings concerned were not being used at the time of their acquisition, it nevertheless intended to bring the buildings back into use by finding suitable tenants. Accordingly, TAL contended that it should be entitled to the allowances on the basis that the buildings were “temporarily out of use” within section 285 up to the point that TAL decided to cease their efforts to use the buildings and sell them. The respondent commissioners disallowed TAL’s claims on the basis that the buildings did not meet the definition of “industrial buildings” in section 271. In particular, the buildings were not “temporarily out of use” within section 285 because a period of actual use was required at both ends of a period of temporary disuse; as the buildings never came back into actual use, the period during which it was not being used was not temporary. The First-tier Tribunal (FTT) concluded that the buildings ceased permanently to be used as industrial buildings when they stopped being used by CPT. Therefore, at the time of their acquisition by TAL, the buildings had ceased to be used as industrial buildings and TAL was not entitled to the allowances claimed. The appellant, as nominated member of TAL, appealed. Held: The appeal was allowed. (1) The key point was whether section 285 envisaged that a period of temporary disuse could be followed by a period of permanent disuse without affecting the status of the earlier period or, if a period of temporary disuse turned out, as events unfolded, to be permanent because of a change of use of the building or another balancing event, such as a sale or destruction of a building, the earlier period could no longer be regarded as a period of temporary disuse. If that were the case, the start of the earlier period of temporary disuse would, with hindsight, become the start of the period of permanent disuse. Such an interpretation was consistent with the ordinary meaning of the word “temporary”. That indicated that a period was to be regarded as temporary if it was meant to last for a limited period of time. Adopting the ordinary meaning of the word “temporary” so as to include the intentions of the owner of the building was consistent with the purposes of the legislation. It was common ground that the purpose of the legislation was to encourage particular forms of economic activity by according to industrial buildings (or in relation to buildings in an Enterprise Zone, commercial buildings) advantages not accorded to other business premises. By allowing allowances to continue to be claimed in a period where the owner clearly meant the building to be used as an industrial building and was undertaking active marketing activities to that end was consistent with that purpose. Otherwise, there could be a disincentive on owners to make that effort since they could end up suffering a financial disadvantage. (2) The correct approach to be followed in order to establish whether, in relation to any particular chargeable period, an industrial building was in a state of temporary disuse, was to look at all the relevant circumstances and not only the physical state of the building. That inevitably meant establishing why the building was empty and what the owner intended to do with it. Those matters needed to be looked at objectively by reference to the available evidence. Simply because the owner said that he intended that the building be used as an industrial building was not sufficient. It had to be tested by reference to the other available evidence, such as the efforts being made to bring the building back into use and how it was intended to be used. (3) The expressed intentions of the taxpayer had to be tested objectively (along with the other circumstances) and there was no difficulty in carrying out that test simply because the taxpayer’s intentions might change. Those expressed new intentions again had to be tested against the evidence. The fact that section 285 did not refer to intention was immaterial; the ordinary meaning of the word “temporary” in the context of the use, or disuse, of a building included what the owner meant to do with it. The FTT was used to deciding the outcome of appeals on the basis of the taxpayer’s intention. It followed that the question whether the disuse of a building in any particular period was temporary could be established by means other than by establishing that the period occurred between two periods of actual use. Establishing those facts demonstrated that the period in between was temporary but it did not preclude other evidence establishing the same result by reference to the taxpayer’s intended use of the building. Consequently, the FTT erred in its conclusions by determining that the question of TAL’s intention was not a relevant factor in determining whether section 285 applied to a period of disuse and also erred in holding that the application of section 285 in a given chargeable period could change by reference to events and subsequent chargeable periods. (4) At the time of acquisition by TAL, the buildings remained in temporary disuse and that period was capable of continuing under its ownership without being terminated as a result of the change of ownership and the balancing event which then occurred in relation to CPT. The period of temporary disuse continued up to the point at which it decided to cease its marketing efforts and attempts to use the remaining buildings. as found by the FTT. Julian Ghosh QC and Emma Pearce (instructed by Ashurst LLP) appeared for the appellant; Julian Hickey (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents. Eileen O’Grady, barrister Click here to read a transcript of Shaw v Commissioners for HM Revenue and Customs