Court Accepts Taxpayers' Just and Reasonable Apportionment of Proceeds of Sale

When a mother and son from a village near Barnsley sold their property (a house plus adjoining commercial buildings and land), the apportionment of the sale proceeds was crucial in the determination of the liability for Capital Gains Tax (CGT). The proceeds of sale of the house were exempt from tax under the legislation that exempts gains on a person's residence from CGT.

The total sale proceeds were £725,000 and they apportioned the proceeds as £325,000 for the house and £400,000 for the land, which had development value.

HM Revenue and Customs (HMRC) disputed this, claiming that the correct apportionment was £555,000 for the land and £170,000 for the house.

The vendors argued that the sale proceeds had been apportioned in the contracts of sale as they had stated and they also produced a report from a local estate agent which showed the valuation of the house to be £325,000. However, the court decided that the document was too vague in its terms to be considered in evidence.

HMRC's expert was an officer in the Valuation Office Agency (VOA). He argued that to value part of the property in isolation was not valid. Instead, 'the aim should be to arrive at the contribution each part, in reality, makes to the total value'. He highlighted the fact that a number of comparable houses had been sold in the vicinity for between £160,000 and £320,000.

The court was of the opinion that the formula provided by the VOA to its officers for use when apportioning land and buildings in circumstances such as these is 'less than satisfactory'.

The court rejected HMRC's challenge, concluding that the valuations placed by the vendors on the respective parts of the property were 'a just and reasonable apportionment'.