Land-holding company formed to avoid estate duty and pay portions to children–Substantial sales of developable land over the years to some extent forced on company–Commissioners entitled to reach conclusion that company was engaged in a trading venture–‘Arguments both ways’
This was an
appeal by taxpayers, Tempest Estates Ltd, of Mawdsley Street, Bolton,
Lancashire, from a decision of special commissioners for income tax determining
that the company’s acquisition of part of the Tempest Estate, near Bolton, Lancashire,
constituted a trading venture. The respondent was Mr G Walmsley, an inspector
of taxes.
Mr C N Beattie
QC and Mr H H Lomas (instructed by Broadbent, Heelis & Liptrott, of Bolton)
appeared for the appellants, and Mr B J Davenport (instructed by the Solicitor
of Inland Revenue) represented the respondent.
Giving
judgment, FOX J said that the appellant company was incorporated on October 4
1946. Its objects included power to deal in land. It had a nominal capital of
40,000 shares of £1 each. At the date of the company’s incorporation the
eleventh Baroness Beaumont was tenant for life of the Tempest estate,
comprising about 1,300 acres near Bolton, which had been in her family for a
very long period. The commissioners found that the prime purpose of the
formation of the company was to avoid estate duty on Lady Beaumont’s death by
transferring to the company part of the lands of the Tempest estate which were
on the outskirts of Bolton, and therefore likely to increase in value for
development, and consequently likely to incur estate duty at the full rate and
not the agricultural rate. The secondary purpose, the commissioners found, was
to supplement the portions of Lady Beaumont’s younger children (of whom there
were seven) by allocating to them shares in the company which would
automatically increase in value with the value of the lands. The directors were
Lord Howard, who was Lady Beaumont’s husband; Lord Beaumont, her son; and Mr
Liptrott, a solicitor. Lord Beaumont and Mr Liptrott gave evidence
before the commissioners; Lord Howard was by then dead.
By the
arrangement that was made, the trustees of the family estates of Lord Howard
appointed £21,050 out of these estates to Lord Beaumont (Lady Beaumont’s eldest
child), and that sum was used by him in subscribing for shares in the company.
Those shares were then allotted to trustees for the children of Lady Beaumont.
Secondly, the company itself, some time in 1946, purchased from the trustees of
the Tempest estate certain farms, cottages and undeveloped land on the
outskirts of Bolton comprising about 493 acres for £43,165, at which price the
land was valued by a valuation in August 1946. The gross rents were about
£1,200 per annum. Thirdly, of the purchase price of £43,165, a sum of about
£28,000 was raised on mortgage from the trustees of the Beaumont settled
estate. After the purchase the company’s land agents (who were also agents of
the Tempest estate) were instructed that the company’s policy in relation to
the land was to be the same as when the land was part of the Tempest estate; in
other words, all agricultural land was to be retained unless required by the
local authority under the threat of a compulsory purchase order, and the policy
of reletting to relatives of outgoing tenants was to be continued. The
commissioners found that when the company was formed there was then the
prospect of eventual development of the lands because of land scarcity in
Bolton. Until 1957, however, disposals were trifling. There were many inquiries
by would-be developers, but they were turned down. Land was never offered for
sale by the company. In 1959 the company received an offer to sell certain
lands, referred to in the case as the Deane land. This was refused. Lord
Howard, in a letter on behalf of himself and Lord Beaumont to Mr Liptrott,
said, ‘There is no pressure for us to sell now, and we feel that a much better
price will be obtained in a few years’ time.’
In 1961 there
were sales to the Bolton Corporation under threat of compulsory purchase
orders, the prices realised amounting to about £61,000. In 1963 the mortgage
was repaid. Lord Howard, who was chairman of the directors until 1965, viewed
with displeasure the selling of any family land. In 1963, however, he was
persuaded by Lord Beaumont and others to agree to a more active development
policy. Lord Beaumont and the other persons involved were concerned about
possible nationalisation of development land. They were particularly concerned
about the Deane land, which was designated in the Bolton development plan for
residential development. At a meeting of the directors on October 8 1963 it was
decided that an immediate application should be made for outline planning
permission for the Deane land with a view to its development. It was also
resolved (a) that if planning permission was granted the company should either
develop the land itself or enter into an arrangement with a builder for its
development, and (b) that in principle the company should consider the
development of land capable of development as and when occasion permitted, with
a view to realising the potential of the land to the best advantage. As
appeared from the company’s accounts dated March 31 1966, the Deane land and
two farms, Clough farm and Eatocks farm, were valued at £155,000, £47,500 and £9,250
respectively and were expressed to be transferred from investment land to
trading stock. In November 1964 the Deane land was sold for £160,500 to the
company’s subsidiary, Ladybridge Developments Ltd. The company admitted
liability to tax on its sale by reference to the difference between the sale
price of £160,500 and the figure of £155,000 at which it had been valued as
trading stock. In 1971 the company sold further land for £31,000. Thus the
company, having purchased its lands for about £43,000 in 1946, had by 1971 made
sales amounting to about £270,000 and still retained the Clough and Eatocks
lands and three farms of about 120 acres, of which one, Dob Hill, about 37
acres, was never development land.
The
commissioners said that eventually the shares of Lord Beaumont’s younger
brothers and sisters (there were seven of them) were purchased for cash by the
trustees of the Beaumont settled estates, each brother or sister receiving
£35,000. The company never purchased any land save for the purchase in 1946
from the Tempest estate. In these circumstances the commissioners found that
the acquisition of the land in 1946 was a trading venture. The company, on the
other hand, said that on the facts the commissioners found, the only reasonable
conclusion contradicted their determination. The question, it was submitted,
was whether the property was acquired for the purpose of trade or not. This
property, it was asserted, was manifestly not acquired for trading purposes.
Admittedly what the company acquired in 1946 was land likely to increase in
value because of its development potential. But the purpose for which it was
acquired, said the company, was saving estate duty and supplementing portions.
As to the statement by the commissioners in their decision that the directors
must have known that ‘it was only a matter of time before the lands would have
to be disposed of, voluntarily or compulsorily, or developed,’ the company said
that valuable building land did not have to be disposed of or developed. It
could simply be retained. Given a family of extensive landowners like this one,
retention would be a perfectly normal course. In support of this, the company
pointed out that the commissioners found that the agents were instructed that
the company’s policy in relation to this land was to be the same as when the
land formed part of the Tempest estate. The policy of reletting to relatives of
outgoing tenants was to be continued. There were in fact many relettings. In
particular the Deane golf course, part of the Deane land, was relet in 1951 for
31 years from 1949. The commissioners, the company said, had no justification
for their inference that the company expected to exploit the land to its best
advantage. Lord Howard was not anxious to sell any land. As regards the letters
written by Lord Howard in 1959, these, said the company, merely showed a
landowner aware of the value of his land and not prepared to sell at an
unfavourable price. No doubt, it was said, the company hoped ultimately to sell
at a splendid profit, but that did not make it a dealer.
These were
arguments of substance. It might well be that the commissioners could properly
have come to the conclusion that the company was not trading. As in many of
these cases, there were arguments both ways. However, the question before the
court was not whether the company was trading or not. The question was whether
the only reasonable conclusion from the facts contradicted the commissioners’
conclusion. It was established, first, that the company had power to deal in land.
Secondly, it must have been perfectly plain to the directors when the company
acquired the land in 1946 that it was almost certain to go up in value. The
commissioners found that when the company was formed to take over the lands
there was then the prospect of their eventual development because of their
proximity to Bolton and because of land scarcity in Bolton. The company bought
the land in 1946 for full value, over half of which was raised by mortgage.
Having regard to the company’s exceedingly low income (only a little over
£1,000 a year on properties costing £43,000), then, if that mortgage was to be
paid off, the most likely way of doing it was by sales of land. That was what
in fact happened: by 1963 the company had sufficient money in hand from sales
to pay off the mortgage. As early as 1958, the company made a sale amounting to
about £14,000 without pressure by threat of compulsory acquisition or
otherwise. The fact that the company was formed for the purpose of estate duty
saving and supplementing portions was not necessarily inconsistent with
acquisition of the land for trading purposes. Both purposes could be achieved
even if the company was trading. A policy of reletting vacant land to the
family of the deceased tenant was not necessarily inconsistent with a
long-term policy of exploiting the land by sale. Making full allowance for the
facts that the land had been in Lady Beaumont’s family for generations, that it
was transferred to the company as part of an estate duty saving scheme, that the
company was in no hurry to sell and until sale dealt with the land as it had
been dealt with when settled, he (his Lordship) could not in the circumstances
say that the only reasonable conclusion to which the commissioners could have
come was that the land was not acquired for trading. It seemed to him that
there was evidence upon which the commissioners could come to the conclusion
they did, and he accordingly dismissed the appeal.
The company
were ordered to pay the costs.
