Oates & anr v HMRC [2014] UKUT 0409 (LC)

Analysis

Mr and Mrs Oates (the appellants) were taxpayers who had sold their home together with a substantial piece of scrub land with development potential for £725,000. The gain on the sale of the appellants’ home and garden was exempt under s222 of the Taxation of Chargeable Gains Act 1992 (TCGA) but capital gains tax was payable on the land. Section 52(4) TCGA required the apportionment between the value of the land and the house to be on a ‘just and reasonable basis’ however no method is laid down in the legislation to assess this.

The appellants did not appear at the hearing nor were they represented. The report which the appellants submitted to the tribunal was not in the correct format and did not provide any detail as to how the appellants’ valuer had arrived at his calculation on the apportionment between the house and land. The appellants’ report stated that the sale price should be apportioned as to £325,000 for the house and £400,000 to the land. The tribunal chose to discount this report due to its brevity and lack of methodology.

By contrast, the valuer from HMRC’s Valuation Office Agency (VOA) provided a detailed report which provided comparable house sale prices in the same street which led him to the conclusion that the sale proceeds should be spilt as to £170,000 for the house and £555,000 for the adjoining land. The methodology used by the experienced VOA valuer was to then deduct the value that the house would attract in its own right, ignoring the fact that the land had little value in terms of its current use, and to deduct this from the total sale price thus arriving at £555,000 as a value for the land.

The tribunal, finding in favour of the appellants, held as follows:

Held:

1. 1) In considering guidance and case law:
2. (i) Section 8 – Part 1: Private Residence Relief of the VOA’s Capital Gains provides guidance as to ‘just and reasonable’ apportionment methodology and the object should be to arrive at the contribution which each part makes to the sum to be apportioned.
3. (ii) Salts v Battersby (1910) states that the correct approach to apportioning is by value not area. Values of the parts of a property will not always equal the value of the whole. This is due to the presence of a ‘marriage value’.
4. 2) The respondent’s apportionment was inconsistent as comparables were provided only for the house but not for the land. Deducting the value of the house from the sale proceeds of the whole incorrectly depressed the apportionment attributable to the house.
5. 3) In considering the appellants’ figure of £325,000 and using the VOA manual’s precedent calculation then the value of the land alone would not have been valued at more than £209,210 for its use value, ie without reference to its development potential. For the apportionment to the house to be under £325,000 this would mean the value of the land would be in excess of £209,210.
6. 4) Having considered the positioning of the land, the access to it, the derelict buildings standing on the land together with the rateable values of the land and in the absence of evidence from the either the respondent or the appellant as to the land’s value (without reference to its development potential) the tribunal was satisfied that the value of the land would not exceed £209,210. Using the VOA formula for calculation, the appeal must succeed because the house apportionment could then not be less than the £325,000.

JUDGMENT P D McCREA FRICS Introduction [1] These are appeals under s31(1) of the Taxes Management Act 1970 by Mr Raymond Oates and Mrs Doreen Oates (the appellants) who are mother and son. They are appealing against the determination by Her Majesty’s Revenue and Customs (the respondent) of the apportionment of the sale proceeds of …

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