Capital Gains and other taxes manual

Appendix 40 : The Upper Tribunal (Lands Chamber) and Lands Tribunal for Scotland

The Valuation Office Agency's (VOA) technical manual used to assess Capital Gains and other taxes.

1. Introduction

In England & Wales, the Upper Tribunal (Lands Chamber) [UTLC] is the successor to the Lands Tribunal and is an independent and specialist judicial body that forms part of the Tribunal Service. The functions of the Lands Tribunal were transferred to the Upper Tribunal in 2009 at which time the Lands Tribunal was abolished. In Scotland the equivalent tribunal continues to be the Lands Tribunal for Scotland [LT Scotland].

The wider Tribunal Service structure comprises the First-Tier Tribunal with 6 chambers (one of which is the Tax Chamber) and the Upper Tribunal with 4 chambers (which include the Lands Chamber (in England & Wales) and also the Tax & Chancery Chamber). These tribunals replaced the General and Special Commissioners.

The UTLC consists of a President, who is the judicial head, and legal and surveyor members. The LT Scotland consists of a president who is a Court of Session judge, and legal and surveyor members.

The Practice Directions of the UTLC allows for a number of different procedures including standard, simplified and written representations. These are expanded on below.

The LT Scotland has its own rules and procedures whose effect is very similar to those of the UTLC. Only material differences between the two regimes are detailed below.

2. Jurisdiction

Section 46D(1), Taxes Management Act 1970 states:

In so far as the question in dispute on an appeal to which this section applies –

a) is a question of the value of any land or of a lease of land, and

b) arises in relation to the taxation of chargeable gains (whether under capital gains tax or corporation tax ) or in relation to a claim under the 1992 Act, the question shall be determined by the relevant tribunal.

Subsection (3) defines the ‘relevant tribunal’ as the Upper Tribunal in relation to land in England & Wales, and the ‘Lands Tribunal for Scotland’ for land in Scotland.

Additionally SI 2009 no 1021 - The First-tier Tribunal and Upper Tribunal (Chambers) (Amendment No. 2) Order 2009 - allocated to the Lands Chamber all functions in England & Wales in relation to appeals “on questions of the value of land or interests in land arising in tax proceedings”. This is wider than the previous provisions and includes not only appeals against capital gains tax, chargeable gains to corporation tax, inheritance tax and stamp duty land tax but also land valuation disputes arising in income tax, corporation tax and VAT.

Disputes in capital gains tax cases that do not involve the ‘value of land’ such as CGT Private Residence Relief ‘permitted area’ cases that would previously have been determined by either the General or Special Commissioners are now allocated to the Tax Chamber of the First-tier Tribunal.

3. Procedure for referral to the Tribunal

This is explained in Section 6, paragraph 6.91 of the Manual.

4. HMRC representation

On receipt of an appeal to the Tribunal against a decision concerning the value of land HMRC will decide in conjunction with their Solicitor whether the Solicitor’s Office will represent HMRC or whether the case is suitable for representation by HMRC’s Appeal Unit. Where the UTLC’s standard procedure is adopted it is expected that HMRC will usually be represented by the Solicitor, or Counsel.

If the case concerns land in Scotland, and is to be heard in the LT Scotland, the case will be referred by HMRC to the HMRC division of the Office of the Advocate General for Scotland. One of its lawyers will represent HMRC in the conduct of the case, instructing Counsel as appropriate.

5. Choice of witnesses

Section 17 of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010

provides that no party may call more than one expert witness without the permission of the Tribunal except in relation to proceedings relating to mineral valuations or business disturbance where two may be called. In cases which require more than one expert witness (e.g. building surveyor, specialist planner) HMRC’s Solicitor should be alerted at an early stage so that the Tribunal’s consent may be sought.

Any valuer authorised to be an expert witness in any proceedings before the Tribunal should be approved by SVT Policy & Professional. In this connection it should be borne in mind that the expectation of the Tribunal that the evidence should be given by the best available expert witness should be balanced with the proper use of resources and the need to afford opportunity to valuers to gain experience, particularly when the reference is straightforward, without complexity of valuation or point of principle.

Normally an outside witness (including retired staff) whether on matters of fact or as an expert, will not be called to give support to HMRC’s case, but if in the circumstances of a particular case this is considered desirable, then it should be discussed with SVT Policy & Professional.

6. Preparation of case

The expert witness will be required to prepare a written report for filing and serving unless the Tribunal directs otherwise. The report includes facts relating to comparable transactions on which the expert intends to rely, any plans, photographs or other documentation relevant to the report.

The details of what should be included in a written report are set out in Appendix 42 and guidance on the exhibits that should accompany the written report are set out in Appendix 41.

The Lands Chamber Rules are that a written report of an expert must:

a. contain a statement that the expert understands their overriding duty to the Tribunal and has complied with it, b. contain the words “I believe that the facts stated in this report are true and that the opinions expressed are correct”, c. comply with the requirements of any practice direction as regards its form and contents, and d. be signed by the expert.

The form and content of the expert’s report is subject to UTLC Practice direction 8.2 which states that:

An expert’s report should be addressed to the Tribunal and not to the party from whom the expert has received instructions. It must:

a. give details of the expert’s qualifications;

b. give details of any literature or other material on which the expert has relied in making the report;

c. say who carried out any inspection or investigations which the expert has used for the report and whether or not the investigations have been carried out under the expert’s supervision;

d. give the qualifications of the person who carried out any such inspection or investigations; and

e. where there is a range of opinion on the matters dealt with in the report—

i. summarise the range of opinion, and

ii. give reasons for his or her own opinion;

f. contain a summary of the conclusions reached;

g. contain a statement setting out the substance of all material instructions (whether written or oral). The statement should summarise the facts and instructions given to the expert which are material to the opinions expressed in the report or upon which those opinions are based.

The expert should comply with the RICS Practice Statement and Guidance note ‘Surveyors acting as expert witnesses (3rd Edition)’ as supplemented by the 2009 addendum and the 2011 2nd addendum (or any new versions) available from the RICS website.

Expert reports prepared for LT Scotland cases should be similarly addressed with similar contents.

7. Exchange of documents

At an early stage following referral to the Tribunal, the Registrar will normally require that both parties file and serve their expert witness reports and exhibits. This action is done by HMRC’s Solicitor but the expert must ensure sufficient signed copies of their report and exhibit bundle are with the Solicitor in good time for compliance with the time limit.

The expert witness will not normally be allowed to give evidence which goes beyond what is stated in the report.

Prior to the exchange of reports the experts must take steps to agree facts relevant to their report – see ‘statement of agreed facts’ below.

8. Rebuttal evidence and written questions

If new evidence or opinion of which the VOA expert is unaware is included in the other party’s expert witness report then it may be necessary to respond to this by producing additional evidence and opinion to distinguish. This is to ensure that the Tribunal have a full and balanced picture of the evidence. Whether this action is appropriate should be considered in liaison with SVT Policy & Professional and HMRC’s Solicitor. If considered appropriate, HMRC Solicitor, on payment of a fee, may apply under rule 6 of The Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 for permission to file and serve evidence in rebuttal. The taxpayer may similarly apply to submit evidence in rebuttal.

As an alternative or additional to rebuttal procedure, a party may put written questions about the report of an expert instructed by another party in accordance with the UTLC’s practice directions. Normally such questions should be put once only; should be put within 1 month of service of the expert’s report; and should be only for the purposes of clarification of the report.

If the VOA expert wishes to put questions to the taxpayer’s expert this should be done via HMRC Solicitor and in liaison with SVT Policy & Professional.

Similarly, if question(s) are asked of the VOA expert they should direct replies through HMRC Solicitor and in liaison with SVT Policy & Professional. Replies should be answered within 3 weeks unless the Tribunal order otherwise.

Any expert’s answers to questions will be treated as part of the expert’s report.

9. Statement of agreed facts

The UTLC’s Practice Direction states:

“Where more than one party is intending to call expert evidence in the same field, the experts must take steps before preparing or exchanging their reports to agree all matters of fact relevant to their reports, including the facts relating to any comparable transaction on which they propose to rely, any differences of fact, and any plans, documents or photographs on which they intend to rely in their reports.”

It goes on to say:

“After the exchange of the experts’ reports, and again if rebuttal reports are exchanged, the experts of like discipline should usually meet and, where the Tribunal so directs must meet, in order to reach further agreement as to facts; to agree any relevant plans, photographs, etc; to identify the issues in the proceedings; and where possible, to reach agreement on an issue. The Tribunal may specify the issues which the experts must discuss. The Tribunal may also direct that following a discussion between the experts the parties must prepare a statement for the Tribunal showing those facts and issues on which the experts agree and those facts and issues on which they disagree and a summary of their reasons for disagreeing. The Tribunal will usually regard failure to co-operate in reaching agreement as to the facts and issues as incompatible with the expert’s duty to the Tribunal and may reflect this in any order on costs that it may make.

The contents of the discussions between the experts are not to be referred to at the hearing unless the parties agree. Where experts reach agreement on an issue during their discussions, the agreement will not bind the parties unless the parties expressly agree to be bound by the agreement.”

The LT Scotland will normally expect the parties’ experts to have met and to have agreed what they can so that the areas of dispute are identified.

The onus for preparation of a draft statement for agreement does not lie strictly with either the appellant or the respondent. However the VOA expert should always give consideration to what items should be included, covering all significant facts in relation to the case in question. Typical items for inclusion would be:

a. Concise summary of the background to the dispute (e.g. chargeable occasion, statutory

b. provisions etc) and the matter in dispute.

c. Description of the property (including dimensions/areas as appropriate) and the locality.

d. Maps, plans, photographs and any other factual exhibits.

e. Details of comparables including descriptions and sales/valuation details.

f. Details of any elements of the valuation which are agreed, if applicable.

Where valuers propose to rely on computer based valuations they must agree to employ a common model which can be made available for use by the Tribunal in the preparation of its decision.

10. Discovery of documents

The Tribunal may permit or require a party or another person to provide documents, information, evidence or submissions to the Tribunal or a party.

This rule also enables the Tribunal to obtain particulars of relevant facts of the contentions to be relied upon by any party and to crystallise the issue, or issues, to be decided by the Tribunal.

11. Preliminary hearing

On the application of any party to proceedings, or on its own initiative, the Tribunal may order any preliminary issue in the proceedings to be disposed of at a preliminary hearing where such issue is properly severable from other issues in the proceedings and where its determination might effectively dispose of the whole case or reduce the issues in the case, thereby saving costs and avoiding delay.

12. Nature of hearing

It is up to the Tribunal to determine the nature of the hearing. The Tribunal will take account of the parties’ view before they issue directions leading to the hearing and, in England & Wales, assign every case to one of four procedures:

a. Standard procedure – this is the traditional procedure that applies in all cases not assigned to one of the other procedures. The case management will be in the hands of the Registrar, who will give such directions as appear to be necessary and may call a case management hearing if appropriate.

b. Simplified procedure – this procedure will be used where no substantial issue of law or valuation practice, or conflict of fact, is likely to arise. It is often suitable where the amount of tax is small. The objective is to move to a hearing as quickly as possible, with a minimum of formality and cost. The hearing is informal and strict rules of evidence do not apply;

c. Special procedure – a case will be assigned to this procedure if it requires case management by a Judge or Member in view of its complexity, the amount in issue or its wider importance. An early case management hearing will be held for appropriate directions to be given.

d. Written representations procedure – the Tribunal may order that the proceedings be determined without an oral hearing. An order for the written representation procedure to be followed will only be made if the Tribunal, having regard to the issues in the case and the desirability of minimising costs, is of the view that oral evidence and argument can properly be dispensed with. The consent of the parties will usually be required.

All UTLC and LT Scotland hearings must be held in public although the Tribunal may give a direction that a hearing, or part of it, is to be held in private.

When a party has disclosed an expert’s report any party may use that expert’s report as evidence at the hearing.

13. The standard procedure

The procedure at the hearing is within the discretion of the presiding Judge or Member but will generally accord with the practice in the High Court (in Scotland the Court of Session) and will normally be as follows:

a. The advocate representing the appellant taxpayer opens. The advocate will indicate the matter in dispute, the facts to prove, the evidence which will be given and the relevant statutory provisions.

b. The advocate representing the appellant will call any expert witnesses and witnesses of fact. Evidence will be taken on oath, and the rules of evidence will be applied.

c. HMRC will be the respondent and their advocate may cross-examine witnesses. Leading questions may be asked in cross-examination

d. At the conclusion of cross-examination the advocate for the appellant or maker of the reference may re-examine the witnesses, each re-examination to be confined to clarification of matters dealt with in cross-examination, and must not introduce new evidence.

e. The respondent’s advocate will then set out the respondent’s case, calling witnesses (e.g. VOA expert) who may similarly be cross-examined and re-examined.

An expert witness is not normally allowed to read from their report in England & Wales, but in Scotland, the report may be read out by the expert. However, the Member will normally have familiarised themselves with its contents prior to the hearing and may order it be taken “as read”. Certainly there is normally no objection, with the consent of the Member, to witnesses refreshing their memory from notes or copies of valuations, schedule of comparables, or the like. Usually the respondent’s advocate will take the witness through his/her report, highlighting any parts, which are considered to be of particular significance. After being called and sworn, the witness will remain standing until invited to sit down by the Member.

Care should be taken that the VOA’s independent professional standing and integrity are not impugned, particularly by over-familiarity with HMRC’s Solicitor or other HMRC officers, and that the witness does not appear to be prejudiced. It must be remembered that the role of an expert witness is to assist the Tribunal in reaching a decision. It is not for the witness to adopt a narrow adversarial viewpoint excluding all possibilities without due consideration, and certainly no element of advocacy should enter into the evidence.

Whilst the VOA expert is “in the box”, i.e. after being called and before being released (including adjournments prior to the completion of giving evidence) the witness must not discuss the evidence with anyone. If HMRC’s Solicitor needs advice while the VOA expert is “in the box”, SVT Policy & Professional will normally provide it.

The witness should avoid referring to any parts of VOA Manuals or other instructions that are not in the public domain.

f. Proceedings end with a closing statement by the advocates for both parties.

14. The simplified procedure

The simplified procedure provides for the speedy and economical determination of cases in which no substantial issue of law or of valuation practice or conflict of fact is likely to arise. It is often suitable where the amount at stake is small. It will not normally be appropriate for cases involving more than one expert witness.

The objective is to move to a hearing as quickly as possible and with the minimum of formality and cost. In most cases a date for the hearing, normally about 3 months ahead, will be fixed immediately.

The hearing will be informal and strict rules of evidence will not apply. Evidence will not be taken on oath, unless the Tribunal orders otherwise. The hearing will almost always be completed in a single day.

No costs order will be made unless the Tribunal—

(a) considers it appropriate to take the making of an offer of settlement by a party into account;

(b) regards the circumstances as exceptional; or

(c) considers a wasted costs order should be made.

15. Written representations

The Tribunal may order that the proceedings be determined without an oral hearing. An order for the written representation procedure to be followed will only be made if the Tribunal, having regard to the issues in the case and the desirability of minimising costs, is of the view that oral evidence and argument can properly be dispensed with. The consent of the parties will usually be required.

If the VOA caseworker becomes aware that another party has applied for a hearing by written representations, SVT Policy & Professional should be informed immediately.

Directions will be given to the parties relating to the filing of representations and documents and, if necessary, the Judge or Member allocated to the case will seek to carry out a site inspection before giving a written decision.

Normally, following the exchange of expert’s reports, each party will be given the opportunity to comment on any item in the other party’s report but will not be allowed to introduce fresh evidence, unless it is to be used to counter assertions made in the other party’s report.

Costs will only be awarded if there has been an unreasonable failure on the part of the claimant to accept an offer to settle, if either party has behaved otherwise unreasonably, or the circumstances are in some other respect exceptional.

16. Site inspections by Tribunal

The Tribunal may, with the consent of the occupier, enter and inspect the land or property that is the subject of the proceedings; and as far as practicable, any other land or property relevant to the proceedings to which the attention of the Tribunal is drawn.

17. Non appearance

If a party fails to attend a hearing, the Tribunal may proceed with the hearing in the party’s absence if the Tribunal:-

(a) is satisfied that the party has been notified of the hearing or that reasonable steps have been taken to notify the party of the hearing; and

(b) considers that it is in the interests of justice to proceed with the hearing.

The Tribunal may, at the request of the parties, but only if it considers it appropriate, make a consent order disposing of the proceedings and making such other appropriate provision as the parties have agreed.

19. Decisions

Whilst the Tribunal may unusually give a decision orally at a hearing, they will normally, as soon as reasonably practicable, provide each party with a decision notice stating the Tribunal’s decision; and notification of any rights of review or appeal against the decision and the time and manner in which such rights of review or appeal may be exercised. The Tribunal must provide written reasons for its decision with a decision notice provided unless consented to by the parties or where the decision was made by consent

20. Costs

Costs (or in Scotland ‘expenses’) are in the discretion of the Tribunal but the general rule is that the successful party ought to receive their costs.

Consideration should be given in advance of a hearing for making a sealed “without prejudice save as to costs” offer (known in England & Wales as a ‘Calderbank’ offer). Such an offer must not be referred to at the hearing but will be brought to the Member’s attention for the purposes of the award of costs in the event of the decision being no more favourable to the parties than the figure offered. A Calderbank offer will only be made by the Solicitor and in no circumstances should the VOA expert make such an offer (see section 6.110 of this Manual).

When the Tribunal’s decision is given HMRC’s Solicitor will, where appropriate, make an application for costs. To allow the Solicitor sufficient time to consider costs, the VOA expert’s chronological diary of costs may be requested and should be forwarded to the Solicitor via SVT Policy & Professional as soon as possible after the hearing.