Taxpayer purchasing land – Land used for purpose of trade carried on by taxpayer – Taxpayer selling part of land for consideration – Taxpayer claiming roll-over relief for consideration – Whether taxpayer entitled to roll-over relief – Inspector refusing claim – Special commissioner allowing taxpayer’s appeal – High Court allowing Revenue’s appeal – Court of Appeal dismissing appeal
In 1988 the taxpayer purchased some freehold and land and buildings (unit 1) to be used as an indoor cricket facility for the purposes of his trade. After effecting building works and in within 12 months of the completion of the purchase of unit 1, he sold part of the of the land and buildings (unit 1A) for consideration. The taxpayer claimed that he had effectively made a part disposal of an “old asset” and “applied” the consideration for the part of the property which he had retained which constituted “new assets”, and that accordingly the transaction was within the scope of section 115 of the Capital Gains Tax Act 1979. He claimed that therefore he was entitled to roll-over relief and was not liable to chargeable gains tax which otherwise arose. An inspector of taxes refused the taxpayer’s claim on the ground that section 115 required that the consideration arising from the disposal of the asset was applied in acquiring “other assets” and that the part of the premises he had retained could not be regarded as “other assets” since it had previously been part of a single asset. A special commissioner allowed the taxpayer’s appeal holding that the correct point of time at which it was appropriate to consider whether there were separate and identifiable new assets was immediately after the disposal, because it was after the disposal that there was any consideration to which section 115 could apply and at that time there was no difficulty in treating the premises which taxpayer had retained as “other assets”. The judge allowed the revenue’s appeal and held that under the 1979 Act a disposal of part of an asset was to be treated as the part disposal of the single asset and therefore unit 1A constituted “old assets” as opposed to “other assets” and, moreover, it could not be said that the consideration for the disposal of unit 1A had been “applied” in the acquisition of the retained part of unit 1. The taxpayer appealed to the Court of Appeal.
Held The taxpayer’s appeal was dismissed.
1. It was crucial for the purposes of capital gains tax to identify the asset acquired and disposed of. Unit 1 had been acquired for a single consideration. Unit 1A and the remainder of unit 1 had only come into existence as a separate asset when the partitioning and disposal had been done, and only then was there consideration to which section 115 could apply and which could be the acquisition cost of the retained part of unit 1.
2. However, the 1979 Act defined what was meant as a part disposal of an asset, and made it clear that it was the whole asset which was the subject of the part disposal. It was crucial for the application of section 115 that there had been an acquisition of assets other than the assets disposed of. Therefore the part disposal of unit 1 when unit 1A was being sold prevented the remainder of unit 1 being “other assets” acquired by a relevant acquisition so as to constitute “new assets”.
Launcelot Henderson QC (instructed by the solicitor to the Inland Revenue ) appeared for the Inspector of taxes; Richard Bramwell QC (instructed by Harfield Pickering, of Redditch) appeared for the taxpayer.