Chargeable capital gains on development land acquired before April 6 1965 and sold without planning permission after that date–Whether tax to be computed on statutory hypotheses contained in paragraph 23 of Schedule 6 to the Finance Act 1965–Straight-line apportionment basis of paragraph 24 not applicable–Taxpayer’s appeal dismissed
This was an
appeal by William Watkins against a ruling of special commissioners for income
tax who had upheld an assessment to capital gains tax for 1971-72 on the sale
of 22 acres of land which had formed part of Westhill Farm, Brackley,
Northamptonshire. The special commissioners had relied on subparagraph (2) of
paragraph 23 of Schedule 6 to the Finance Act 1965. Mr Watkins claimed that
paragraph 24 (straightline apportionment) applied.
D C Potter QC
and Andrew Park (instructed by Speechly, Bircham) appeared for the taxpayer; J
E Vinelott QC and Brian Davenport (instructed by the Solicitor of Inland
Revenue) represented the Crown.
Giving
judgment, FOX J said that Mr Watkins inherited Westhill Farm, Brackley,
Northamptonshire, and used it for agricultural purposes. The county council in
1971 published a plan to zone an area which included 22 acres of Mr Watkins’
land for private residential development. In January 1972 Mr Watkins sold the
22 acres to a development company for £264,000. Up to this time the 22 acres
had been used for agricultural purposes only and no planning permission giving
authorisation for development had been granted.
The issue was
whether paragraph 23 of Schedule 26 applied to land acquired before April 6
1965 and disposed of without planning permission after that date. The Finance
Act 1965 intended to tax gains arising after 1965. Provision had to be made for
cases in which an asset was acquired before 1965 but disposed of afterwards.
Paragraphs 22 to 25 of the Schedule were intended to deal with this problem. By
paragraph 23(2) land was deemed to have been sold and reacquired at its market
value in 1965. The gain on a sale in 1972 would therefore be determined by
reference to that market value. If the paragraph did not apply, apportionment
by reference to straight-line growth over the whole period of ownership was
applicable as provided in paragraph 24.
It was
submitted for the appellant, firstly, that the inclusion in paragraph 23(1)(b)
of the words, ". . . if, immediately before the disposal, it had become
unlawful to carry out any development in, on or over the land . . ."
indicated that the paragraph presupposed a case where immediately before the
disposal it was in fact lawful to carry out development of the land and
required the court to assume a change from the actual state of affairs to a
hypothetical state of affairs in which it was unlawful to carry out the
development.
Secondly, it
was submitted that since there was no planning permission in force authorising
development of the 22 acres at the time of the sale, it was in fact unlawful to
carry out development of the land immediately before the disposal and therefore
it was logically impossible to make the assumption postulated by paragraph
23(1)(b). It was of no consequence that the £264,000 reflected expectation that
planning permission would be forthcoming. Attorney-General v Smith [1958]
2 QB 173 was cited and also section 13(1) of the Town and Country Planning Act
1962.
He (his
Lordship) did not agree with that construction of the paragraph. The ordinary
meaning of "had become unlawful to carry out" any development was
that development of the land was prohibited for the future. What was prohibited
was "any" development. Section 13(1) of the Town and Country Planning
Act 1962 had provided that development carried out with planning permission was
permitted. But the prohibition assumed in paragraph 23 of Schedule 6 to the
Finance Act 1965 was comprehensive. It prohibited all development. The words
"any" and "unlawful" required the assumption that there was
an absolute prohibition on all development.
Paragraph 23
was not restricted to cases where planning permission existed at the date of
sale. There were two distinct hypotheses: (1) that development without
permission was unlawful and (2) that all development was unlawful. Paragraph 23
required a valuation on the second hypothesis, which had a far wider ambit than
the first. Since the hypothesis, was quite different in law from the existing
position it was grammatically correct to use the words "had become
unlawful." The statutory hypothesis
was that there was a total change in the legal position.
The
commissioners had therefore come to the correct decision and the appeal must be
dismissed.
