Capital Gains and other taxes manual

Section 8

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

Part 1: private residence relief

Introduction

8.1 The legislation

Relief from Capital Gains Tax on the disposal of a taxpayer’s private residence is provided under ss.222-226 TCGA 1992, as amended by FA 1996, Sch 20 para 59.

8.2 The relief

S.222(1) of the TCGA 1992 provides relief for a gain realised by an individual in so far as it is attributable to the disposal of an interest in:-

a) ‘a dwelling-house’ or part of a dwelling-house which is, or has at any time in the taxpayer’s period of ownership been, his only or main residence, or

b) land which the taxpayer has for his own occupation and enjoyment with that residence as its ‘garden or grounds’ up to the ‘permitted area’.

S.222(3) and (4) of the TCGA 1992 provide that the ‘permitted area’ shall be 0.5 of a hectare (1 acre for disposals prior to 19 March 1991) or such larger area as is ‘required’ for the reasonable enjoyment of the dwelling-house as a residence, having regard to its size and character.

8.3 Determining the permitted area and the amount of relief

To determine the permitted area and, if this is less than the whole area, the amount of the relief, it is necessary to go through the following five basic steps:

Step 1: Determine the entity of ‘the dwelling-house’, ie. which buildings qualify for relief under Section 222(a). (See Part 2 of this Section). This is for the Inspector to decide, with assistance from the DV.

Step 2: Determine the extent of the ‘garden or grounds’, ie. which land occupied with the dwelling house can be described as garden or grounds (See Part 3 of this Section). This is for the Inspector to decide, with assistance from the DV.

Step 3: Determine the size of the permitted area, ie. if the ‘garden or grounds’ are in excess of 0.5 of a hectare how much of that land is ‘required’ for the reasonable enjoyment of the dwelling house as a residence (See Part 4 of this Section).

Step 4: Determine the location of the permitted area, ie. which part of the garden or grounds would be the most suitable for occupation and enjoyment with the residence. (See Part 5 of this Section).

Step 5: Apportion the proceeds of the disposal and the acquisition cost between the part of the property qualifying for relief and the remainder (See Part 6 of this Section).

These steps need to be followed in strict order avoiding the natural tendency to go straight to a conclusion at step 4. Problems sometimes arise by mixing up the ‘requirement’ test in step 3 with the ‘most suitable’ test in step 4. It is also particularly important to ensure that the Inspector has addressed steps 1 & 2 with larger estates where there may be cottages, stables or other outbuildings in addition to the main house.

8.4 Scope of the DV’s assistance

DVs can assist Inspectors with private residence relief claims as follows:-

a. by providing factual evidence on the nature and the use of the buildings and land to enable the Inspector to determine the entity of ‘the dwelling-house’ and which land was ‘garden or grounds’

b. by identifying the size and location of the ‘permitted area’

c. by providing any necessary valuations and apportionments where only partial relief is available

d. by appearing as an expert witness at an appeal hearing before the General or Special Commissioners to give evidence on a or b above

e. by appearing as an expert witness before the Lands Tribunal to give evidence on any valuations or apportionments required.

8.5 Date at which the matter is to be considered

The DV should consider the size and location of the permitted area as at the date of the disposal. If there is a series of disposals then it is necessary to go through the steps in paragraph 8.3 at each date.

8.6-19 Reserved

Part 2: the entity of the dwelling-house

Material Updated 01/04/03

8.20 Introduction

As indicated in paragraph 8.2, relief from CGT on the disposal of an individual’s private residence is provided by s.222(1) TCGA 1992. The section applies to a gain accruing so far as “attributable to the disposal of, or in of interest in:-

a) a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence; or

b) land which he has for his own occupation and enjoyment with the residence as its garden or grounds up to the permitted area.”

The first issue to be considered therefore is the identification of the ‘dwelling-house’. This is a matter for the Inspector and not the DV. The DV may however provide assistance to enable the Inspector to arrive at a decision.

This step in the process of determining the relief due is particularly important because:

a) if a building is accepted as forming part of ‘the dwelling-house’ it must be included within the permitted area; and

b) any buildings accepted as forming part of ‘the dwelling-house’ will have a bearing on its size and character, which have to be taken into account when considering the permitted area that qualifies for relief under s.222(1)(b) TCGA 1992.

8.21 Staff accommodation

The definitive judgement is contained in the Court of Appeal decision in Lewis (HMIT) v Lady Rook (EGCS21 1992). Nevertheless it is worthwhile reviewing the significant judicial decisions building up to this case.

Prior to the decision in the Court of Appeal in Batey (HMIT) v Wakefield (EG5 December 1981 p.1003; RVR January 1982 p.11), the Revenue took the view that the ‘taxpayer’s residence’ for s.222 purposes normally comprised only the dwelling-house in which the taxpayer resided and that separate dwelling-houses in which domestic servants exclusively resided were (ipso facto) not part of it.

However in Batey in the High Court Mr Justice Brown Wilkinson said that a literal construction of the words “a dwelling-house” in s.222(1)(a) which excluded properties which were themselves dwelling-houses would lead to unacceptable conclusions. A self-contained servant’s flat within the structure of the dwelling-house would be part of the dwelling-house; it followed that a staff house in the stable yard would also be included, and if that were so to put up another structure closely adjacent to the house to provide staff accommodation ought not to produce a different taxation consequence. The test to be applied was “what is the dwelling-house which is the taxpayer’s residence?” and this may comprise a number of different buildings. The Court of Appeal also asserted that there is “no logical reason why a house which is physically quite separate should not form part of another residence or dwelling-house”.

The Revenue derived two tests from the decision in Batey:

  1. the second house had to be very closely adjacent to the principal house
  2. the occupation of the second house had the purpose of enhancing the taxpayer’s reasonable enjoyment of the principal house

In the High Court case of Markey (HMIT) v Sanders in February 1987, Mr Justice Walton specifically approved the two-test analysis but re-phrased the “very closely adjacent” test so as to include the concept of the relative size and scale of the buildings. “What would be very closely adjacent were one dealing with the sale of No 7 Paradise Avenue, Hoxton might very well be quite different from what those words mean if one were considering the sale of Blenheim Palace”. He therefore reconsidered this test in terms of “Looking at the group of buildings as a whole, is it fairly possible to regard them as a single dwelling-house used as the taxpayer’s main residence?” On the facts of the case, he decided that the Commissioners had reached an unsupportable conclusion that a staff dwelling some 400 feet from the principal house comprised one entity with it and the Commissioners findings were reversed.

In June 1987 a further judgement was given in the High Court by Mr Justice Vinelott in Williams (HMIT) v Merrylees. He declined to support the two-test analysis of Batey and preferred a single approach: “What one is looking for is an entity which can be sensibly described as being a dwelling-house though split up into different buildings performing different functions”. He added that “of course the propinquity or otherwise of the buildings having regard to their scale is a very important factor to be weighed” but it must not be isolated as a factor of particular importance.

In February 1992 the Court of Appeal in Lewis (HMIT) v Lady Rook (EGCS21 1992) decided that it was necessary to identify an entity which can be sensibly described as a dwelling-house, though split up into different buildings performing different functions. In cases where there is an identifiable main house it was held that no building can form part of a dwelling-house with the main house unless that building is appurtenant to, and within the curtilage of, the main house.

In the Lady Rook case the C of A quoted from the Leasehold Reform Act case of Metheuen-Campbell v Walters:

‘For one corporeal hereditament to fall within the curtilage of another, the former must be so intimately associated with the latter as to lead to the conclusion that the former in truth forms part and parcel of the latter’.

They also referred to the Court of Appeal decision in Dyer v Dorset County Council (1989) which emphasised the smallness of the area comprised in the curtilage. In the Lady Rook case the main house was a substantial 8 bedroom house/mansion set in 10.5 acres of land. The cottage was175 metres from the house and separated by a large garden with no intervening buildings. The Court came to “the inescapable conclusion that the cottage was not within the curtilage of, and appurtenant to, Newlands, and so was not part of the entity..”.

As a result of these decisions the Inspector’s instructions are now to adopt a much broader approach to the relevant factors. These include the distance between the houses, the nature and quality of the access between them, their respective situations, their relative sizes, and their history of combined ownership and occupation. This will all provide information which may be used to determine whether or not the building is appurtenant to and within the curtilage of the main house.

8.22 Other outbuildings

In the light of the Lady Rook case the Inspector’s instructions no longer distinguish between the nature of different outbuildings. The test is whether the building is appurtenant to and within the curtilage of the main house. Curtilage is defined in the Shorter Oxford Dictionary as ‘a small court , yard, or piece of ground, attached to a dwelling-house and forming one enclosure with it’. Emphasis is placed on the smallness of the area. Buildings standing around a courtyard together with the main house will be within the curtilage of the main house.

The other main factor to be considered by the Inspector is that in accordance with S.224(1) TCGA 1992, relief shall not apply to any part of the dwelling-house which is used exclusively for the purpose of a trade or business, or of a profession or vocation.

Where the DV is aware of any lettings or trade activities at the premises prior to the disposal, eg livery use of stables, he should advise the Inspector.

8.23 Relief for periods of letting

S.223(4) TCGA 1992 provides for some relief from CGT where a gain, to which s.222 TCGA 1992 applies, accrues to any individual and the dwelling-house in question or any part of it is or has at any time in the taxpayer’s period of ownership been wholly or partly let as residential accommodation.

In the case of Owen v Elliott (HMIT) the Court of Appeal held in April 1990 that rooms in a seaside guest house, although used mainly for short-term visits, were nevertheless let by the taxpayer as “residential accommodation” within the relieving provisions of s.223(4) TCGA 1992.

It is considered that the decision is based on the facts of the case as the taxpayers were found by the General Commissioners to occupy the whole of the building together with their guests at certain times of the year.

Inspectors may therefore seek DV’s assistance as to the use/occupation by taxpayers in cases involving let residential accommodation (eg hotels, guest houses etc). Whether or not the relevant accommodation qualifies for relief is however a matter for the Inspector to decide.

8.24 Relief for private residence occupied by dependent relative

S.226 TCGA 1992 provides relief for gains arising from the disposal of a dwelling-house or part of a dwelling-house which was, on 5 April 1988 or at any earlier time during the ownership of the taxpayer, the sole residence of a dependent relative of the individual, provided rent-free and without any other consideration. The relief is the same as that afforded by ss.222-224 TCGA 1992 for the dwelling-house (or part) for the period of residence by the dependent relative. “Dependent relative” in relation to an individual is defined by s.226(6) TCGA 1992 as:-

a) any relative of the taxpayer incapacitated by old age or infirmity from maintaining themselves, or

b) the taxpayer’s or spouses’ mother who, whether or not incapacitated, is either widowed, or living apart from her husband, or a single woman in consequence of dissolution or annulment of marriage.

The application of the provisions of s.226 are a matter for the Inspector.

8.25-29 Reserved

Part 3: garden and grounds

Material Updated 01/04/03

8.30 Introduction

Only land which is occupied by the taxpayer as ‘garden or grounds’ can qualify for relief under Section 222(1)(b) TCGA 1992. This issue must therefore be decided before the DV considers the size and location of the permitted area.

Whether or not an area of land is occupied by the taxpayer as ‘garden or grounds’ is a question of fact. It is a matter for the Inspector to decide and not the DV, although the DV may provide assistance to enable the Inspector to arrive at a decision.

This step in the process of determining the relief due is important because:-

a) only if the land occupied as ‘garden or grounds’ exceed 0.5 of a hectare can the permitted area exceed 0.5 of a hectare (if a house has 0.75 ha of land but only 0.25 ha of it is occupied as ‘garden or grounds’ then the permitted area will be restricted to 0.25ha)

b) the DV cannot decide on the location of the permitted area until the land occupied as ‘garden or grounds’ has been identified because only land occupied as ‘garden or grounds’ can be included in the permitted area.

8.31 Meaning of ‘garden and grounds’

Garden and grounds are not defined in the statute but are taken to be any land occupied and enjoyed by the taxpayer with the dwelling and serving chiefly for ornament and recreation. The phrase ‘occupation and enjoyment’ in S.222(b) should be understood by reference to the legal meaning of the words used. ‘Occupation’ means possession of the land while ‘enjoyment’ means possession without contested claims from third parties. Land used for agriculture, commercial woodland, trade or business will not qualify as “gardens or grounds”. Paddocks and orchards may constitute “grounds”, provided that there is no business use. The Inspector will not exclude land which is unused or overgrown at the date of sale but which traditionally has been part of the grounds of the residence.

To qualify for relief, gardens or grounds must be occupied and enjoyed with the house at the date of disposal. Where the house is sold before the grounds are disposed of, the latter can no longer be regarded as occupied with the house and will not qualify for relief (see Varty v Lynes EG 21/5/77 p625). Relief will not however be denied where at the time of disposal of the grounds, the taxpayer remains in occupation of the house (eg in the interval between exchange of contracts and completion of the sale of the house, or as tenant or licensee of the new owner).

8.32-39 Reserved

Part 4: size of the permitted area

Material Updated 01/04/03

8.40 Introduction

If the land occupied as ‘garden or grounds’ exceeds 0.5 of a hectare then it is necessary to decide whether the permitted area should be restricted to 0.5 of a hectare or whether a larger area is ‘required’ for the reasonable enjoyment of the dwelling as a residence, having regard to its size and character.

This is a question for the DV to decide and advise the Inspector.

8.41 Meaning of ‘permitted area’

The size of the “permitted area” of garden or grounds which qualifies for relief is defined in s.222(2) and (3) TCGA 1992 (as amended by FA 1996, Sch 20 para 59). It is an area, inclusive of the site of ‘the dwelling-house’, of 0.5 of a hectare or where the area required for the reasonable enjoyment of the dwelling-house (or of the part in question) as a residence, having regard to the size and character of the dwelling-house, is larger than 0.5 of a hectare, that larger area shall be the permitted area”.

This should be strictly interpreted, eg where a house might be reasonably enjoyed with 0.5 of a hectare or less although more pleasantly enjoyed with 1 hectare, the “permitted area” should be restricted to 0.5 of a hectare. Relief for areas in excess of 0.5 of a hectare should be regarded as exceptional and must be clearly justified as “required” for the “reasonable enjoyment” of the house as a residence, ie not as the actual owner’s residence, but simply as a residence and by general standards prevailing at the date of disposal.

8.42 Meaning of ‘required’

Judicial guidance on the meaning of “required” can be taken from the case of Geoffrey Longson v Victor Baker (HMIT) - [2001] STC 6, which was determined by the Special Commissioner Mr Everett and, on appeal, by Justice Evans-Lombe of the High Court.

Justice Evans-Lombe equated ‘required’ as used in this statute with ‘necessary’. He also approved of Mr Everett taking guidance on the meaning of this word from the judgement of du Parcq J in the High Court (KBD) case of Re Newhill Compulsory Purchase Order 1937, Paynes Application [1938] 2 AER 163. The Newhill case concerned an application to quash the compulsory purchase of an area of pasture land in the same ownership as a mansion house where Section 75 of the Housing Act 1936 provided:

“Nothing in this Act shall authorise the compulsory acquisition for the purposes of this part of this Act of any land, which at the date of the compulsory purchase order, forms part of any park, garden or pleasure ground or is otherwise required for the amenity or convenience of any house.”

In giving his judgement Mr Justice du Parcq said:

“I call attention to the word “required”. The use of it raises a question of fact which is necessarily a difficult one. Again, I do not wish to repeat myself, but one has to remember that it is pleasant, and, one may say, both an amenity and a convenience, to have a good deal of open space round one’s house, but it does not follow that that open space is required for the amenity or the convenience of the house. “Required”, I think, in this section does not mean merely that the occupiers of the house would like to have it, or that they would miss it if they lost it, or that anyone proposing to buy the house would think less of the house without it than he would if it was preserved to it. “Required” means, I suppose, that without it there will be such a substantial deprivation of amenities or convenience that a real injury will be done to the property owner, and a question like that is obviously a question of fact.”

Clearly then the test of what ‘larger area is required for the reasonable enjoyment of it as residence’ relates to ‘need’ or ‘necessity’ and is very far removed from what is merely ‘desirable’.

8.43 Objective tests

The DV must be satisfied by objective tests that a substantial proportion of those likely to be in the market for the dwelling-house as a residence would require a certain minimum area of garden/grounds exceeding 0.5 of a hectare to be included with the residence and that any smaller area would substantially inhibit the reasonable enjoyment of the house as a residence.

An objective judgement must be made of the likely requirement of the typical person who would normally wish to live in a house of this size and character. No weight should be given to the special or individual requirements of the actual occupier insofar as they are not representative of, or consistent with, the market as a whole in relation to this residence. This is consistent with the decision of Mr Everett, the Special Commissioner in the Longson v Baker case, who said

“Accordingly I am not permitted to take into account the particular requirements of the owner of the dwelling-house: it is the house to which I must look and not the wishes, desires or intentions of any particular owner of the house.”

In the High Court, Mr Justice Evans Lombe confirmed that it is an “objective test”.

In considering the area “required”, the most obvious evidence to consider is the extent of the gardens/grounds enjoyed with houses of similar size and character in the locality at around the date of disposal. Evidence of sale prices is immaterial and should not be used. Part of the character of a property is inevitably determined by its setting or locality and it is therefore important to consider only those properties, which are in the same or a similar locality. The extent of the locality will for this purpose depend upon the proximity of sufficient comparables to obtain a fair impression. It may be necessary to bear in mind:

  1. that there is a general tendency towards smaller gardens because of the expense in maintaining large gardens, convenience, an increase in alternative leisure interests and development pressures coupled with local planning policies concerning density of development etc, and

  2. that houses in urban localities are generally found to have smaller gardens/grounds than in rural districts.

It follows that houses which were built many years ago and/or are in districts which were once rural, but now urban, may no longer strictly require the area of garden/grounds which they retain. The lower end of the range of areas of garden/grounds occupied with comparable dwellings is evidence of requirement. Larger areas are often accounted for by historic reasons, or the owner’s caprice. It should be sufficient to show that there are some closely comparable houses with 0.5 of a hectare or less. No value based test should be used.

8.44 Where stables form part of the entity of the dwelling

The case of Longson v Baker concerned a grade 2 listed former farmhouse, where substantial brick and timber stables in a traditional courtyard setting were included as part of the entity of the dwelling. This together with 7.56 hectares of land was described as an equestrian estate and all the land was claimed to fall within the permitted area. The argument put forward on behalf of the taxpayer was that this was not just a house but a house with stabling and the extent of the stabling was such that its enjoyment required all the land to be included. On appeal it was contended on behalf of the taxpayer that the Commissioner had failed to take into account the equestrian aspect of the dwelling-house. In the High Court, Justice Evans-Lombe said that:

“it is not objectively required, i.e. necessary, to keep horses at a house in order to enjoy it as a residence.”

Thus the inclusion of stabling as part of the entity of the dwelling should not of itself give rise to the requirement for additional land on which to graze horses.

8.45 Inclusion of access

Where access to a public road would on the face of it require inclusion within the “permitted area” of an undue area of land, other closer access possibilities should be considered, perhaps to another road. Where the residence enjoys an existing long access drive or, for example, is situated in an extreme corner of its land it could be argued that there is no need for the access to form part of the land required. If so, then an easement or right of way must be assumed to exist over the non-exempt access land and this should be taken into account in any apportionments. Often the effect of such an assumption will be the same as if the access land were included in the permitted area and DVs should therefore adopt a pragmatic approach.

8.46 Statutory minimum area

It should be noted that if it is considered that the dwelling house requires less than 0.5 of a hectare of the land occupied as ‘garden or grounds’, s.222(3) TCGA 1992 provides that the permitted area should be 0.5 of an hectare. The permitted area can only be less than 0.5 of a hectare if the land occupied as ‘garden or grounds’ is less than 0.5 of a hectare (see paragraph 8.30).

Reserved

Part 5: location of the permitted area

Material Updated 01/04/03

8.50 Introduction

If the DV decides that the ‘permitted area’ is less than the area occupied as ‘garden or grounds’, it is then necessary to identify on a plan exactly which part of the ‘garden or grounds’ should be taken to be the ‘permitted area’.

The location of the permitted area is a question for the DV to decide and advise the Inspector on. This step in the process of determining the relief is important because it may affect the amount of the apportionments.

8.51 Identification of the most suitable location

S.222(4) TCGA 1992 provides that where only part of the garden or grounds qualifies for relief the part to be taken as the permitted area should be that which “if the remainder were separately occupied would be the most suitable for occupation and enjoyment with the residence”.

8.52 Features of the land

In identifying the ‘most suitable’ garden or grounds, consideration should be given to existing features such as the lie of the land, mature trees etc but the location of the permitted area should not be inhibited by the position of existing paths, gates, fences etc. A new layout of the notional grounds may be envisaged. It does not necessarily follow that the part of the garden/grounds which have actually been sold cannot prior to sale form part of the ‘required’ or ‘most suitable’ area since commercial motives or financial necessity might well have outweighed the resulting loss in enjoyment of the residence.

In choosing the most suitable garden or grounds, no undue concern should be given to odd parcels of land falling outside the permitted area that may appear to become land-locked or unusable. This is not important as the test solely has regard to the enjoyment of the residence itself and does not relate to financial or other considerations.

8.53 Buildings on the land

Buildings which form part of the entity of the dwelling-house must be included within the ‘permitted area’ identified on the plan. Similarly, the sites of buildings which do not qualify for relief by reason of their use or occupation must be excluded from the ‘permitted area’. It is desirable for the boundaries of the most suitable location to be drawn so that islands where there is no relief within the most suitable location do not arise. It is however recognised that this will not always be possible. Outbuildings which are not excluded from relief by reason of their use or occupation but do not actually form part of the entity of the dwelling-house will qualify for relief if they are sited on the land identified as being the permitted area. The presence of any such buildings may be taken into account in deciding which part of the garden or grounds are the most suitable.

8.54 Adjustments to the size of the permitted area

DVs should as far as possible keep separate:

a) their consideration of the size of the area ‘required’ from

b) their consideration of the ‘most suitable’ location of the ‘permitted area’.

The criteria to be considered in determining the location of the permitted area should not normally affect the DV’s opinion of the size of the permitted area. However, once the DV has determined the size and in general terms the location, marginal adjustments to the size of the permitted area may be made in order to produce a reasonable result.

8.55-59 Reserved

Part 6: apportionments and valuations

Material updated 01/04/03

8.60 Statutory requirements

Apportionment of values or of actual consideration may be required for several purposes in connection with CGT and are specifically provided for in private residence relief cases by s.222(10) TCGA 1992. They should be in accordance with the requirement in s.52(4) TCGA 1992, ie they should be “just and reasonable”.

8.61 Interpretation of “just and reasonable” method

No particular “just and reasonable” method of apportionment is laid down, but the object should be to arrive at the contribution which each part makes to the sum to be apportioned, whether that sum is open market value as determined by the DV, or actual sale consideration in an arms length transaction. Apportionment by area will only be appropriate where value is evenly spread throughout the land, as was stated obiter in Salts v Battersby 2KBJ155 (1910). This case dealt with the method of apportioning rent and Darling J stated that the correct approach was by value, not area:

“It seems to me to be clear from the authorities that what you have to regard is not the bare acreage of the severed portions of the land demised, but their relative values…. You find the same principle running through them all…. The county court judge was of opinion that the proper way to apportion the rent was to have regard to the yardage and the yardage alone. Therein I think he was wrong. If it be shown that the land is of equal value throughout, no doubt the apportionment must be on the basis of yardage. But yardage cannot be a sufficient test of the relative value by itself; and here, so far from there being evidence that the land was of equal value throughout, the evidence was the other way….”

Therefore it will normally be necessary to find the constituent values of the parts following the provisions set out in para 8.62 below. It should be recognised that the values of the parts may sometimes in total not equal the value of the whole, due to the presence of marriage value. In such cases it will be necessary to apportion thus:-

Open market value or sale price to be apportioned x constituent value of part sum of constituent values of all parts

8.62 Approach to valuations of constituent parts for apportionment purposes

The approach to valuations of constituent parts for apportionment purposes should normally be open market value as applied in other CGT contexts subject to the following exceptions, in order to produce a consistent result:

1) Consistency of access

Where one apportioned part of the whole land has no access of its own, its constituent value should normally be found by assuming a right of way across other parts of the land. For example, in figure 1 below, where the entirety value of area A and B as a whole must be apportioned, the constituent value for the landlocked area A should normally be found on the assumption that a right of way exists across area B.

Figure 1

Consistency of access showing access to property A through property B

2) Consistency of layout

Where the sum to be apportioned (whether market value or an actual sale price) reflects overall development potential, the constituent valuation of the parts must be found assuming a consistent layout, eg, in figure 1 above it would normally be inconsistent to arrive at a higher constituent value for B by assuming development along the existing road frontage without allowing for the assumed access to landlocked area A. It would only be appropriate to do so if the sum to be apportioned did not reflect any need to reserve access to area A.

3) Consistency of type of development

Where the sum to be apportioned reflects overall development potential, the valuations of the constituent parts should be found assuming a consistent type of development, eg. in figure 1 above if the market value (or sale price) of the whole reflects residential development potential over the whole land, the constituent value of areas A and B should be found assuming overall residential potential. Any alternative type of development, say industrial, on area B should be disregarded. But if the sum to be apportioned is itself based on a mixture of different types of development, the constituent valuations of the parts should reflect those differences.

8.63 Bisected plots and buildings

The boundary between parts of land to be apportioned may bisect plots or buildings. The constituent valuations for apportionment of the whole may have to be preceded by apportionments of the bisected parts, eg in figure 2 below, where plots 2 and 8 are bisected, the DV should firstly arrive at separate valuations of these plots alone and then apportion those valuations between the parts falling within areas A and B. The apportioned values of the bisected plots should then be added to the constituent values of the remainders of Areas A and B to arrive at an apportionment of the whole area.

Figure 2

Bisected plots and buildings

8.64 Ransom value cases

Where it is necessary to apportion a sum which reflects overall development potential and the land is all physically of the same quality, then an area based apportionment will usually be appropriate. DVs should not attribute any ‘ransom value’ to part of a site because this could only arise if the land were valued as if it were a separate entity in different ownership from the rest of the site. It is considered that such an assumption would not result in a just and reasonable apportionment.

**Figure 3 **

Ransom Value Cases

For example, in figure 3 above, area A is used for business purposes and the owner lives at B, which all qualifies for Private Residence Relief. Area A is sold for development together with area C which is part of the garden of B. Area C is included in the sale to provide a sight-line for an access road on to area A which is essential for A to be developed. A separate valuation of C would normally reflect its ‘ransom value’ and a separate valuation of A would reflect the need to acquire C. However, the ‘ransom value’ of C only exists if it is valued separately on the assumption that it is in different ownership from A. As A and C are all physically of the same quality an area based apportionment is considered to be just and reasonable.

8.65 Reserved

Part 7: Procedure

Material updated 01/04/03

8.70 General

In private residence relief cases the taxpayer is either presuming the right to relief without expressly claiming it or more specifically is contending that the whole of the property or an identified part of it should qualify for relief.

The Inspector will require guidance about whether or not the presumption or the contention is prima facie acceptable. If in the DV’s view it appears to be acceptable then no difficulty is likely to arise.

If however the DV wishes to challenge the taxpayer’s contention then the DV must be able to demonstrate that prudent judgement has been exercised. In this regard it will be necessary to show that sufficient inspection has been undertaken to ensure that the attributes of the subject land were properly taken into account.

The “not negotiated” procedures set out in Section 6 para 6.22 et seq are applicable to the circumstances where the taxpayer’s contentions are considered to be acceptable. Where this is not so the case should be treated as falling within the ambit of Section 6 para 6.29 and dealt with accordingly.

8.71 Information to be provided by the inspector

In any case where the DV’s opinion of the permitted area is required the Inspector should, in addition to the information set out in Section 6 paragraphs 6.15, advise the DV of:-

a) which buildings are considered to comprise part of the entity of the dwelling-house and whether or not this has been agreed with the taxpayer

b) the extent of the land which is claimed to be garden or grounds.

If this information is not supplied the DV should request the Inspector to provide it. In his response to the Inspector the DV should offer whatever additional information is readily available which may assist the Inspector in reaching a view. The case should be cancelled and then re-opened when the information is provided.

8.72 Dispute over the entity of the dwelling

If the DV has any queries regarding the Inspectors’ view on the entity of the dwelling-house or the information on which it is based, the Inspector should be consulted before proceeding any further.

If the Inspector is unable to agree the entity of the dwelling-house with the taxpayer the DV should base his opinion of the permitted area on the Inspector’s view but may in any negotiations explore the possibility of agreeing alternative permitted areas, without prejudice to the dispute over the entity. It should be remembered that providing an outbuilding is not excluded from being part of the dwelling-house by reason of its use, it may still qualify for relief if it falls within the DV’s permitted area (see para. 8.53). In some cases the fact that there is a dispute over whether or not an outbuilding forms part of the dwelling-house may be of no consequence.

8.73 Dispute over the extent of garden or grounds

If the DV is of the opinion that any of the land claimed by the taxpayer to be part of the permitted area did not comprise ‘garden or grounds’ then the Inspector should be advised of the facts and requested to resolve the issue with the taxpayer.

If the Inspector is unable to agree the extent of the land that was occupied as ‘garden or grounds’ the DV should base his opinion of the permitted area on the Inspector’s view but may in any negotiations explore the possibility of agreeing alternative permitted areas, without prejudice to the dispute over the extent of the garden or grounds.

8.74 Inspector’s request for advice

In cases where the entity of the dwelling-house is not in dispute the Inspector will normally request an informal ‘not negotiated’ opinion of the permitted area. If on the information available the DV is able to accept the taxpayer’s permitted area then the Inspector should be advised accordingly and if any apportionments are required these may be provided on a not negotiated basis. If on the information available the DV is unable to accept the taxpayer’s permitted area then the case should be treated as a request for a formal ‘agreed’ opinion and the Inspector advised accordingly in accordance with Section 6, paragraph 6.28.

In cases where the entity of the dwelling-house is in dispute the Inspector will normally request an ‘agreed’ opinion of the permitted area from the outset.

8.75 Inspections

In cases where the Inspector requests a ‘not negotiated’ opinion of the permitted area the DV should, whenever possible, make an external inspection of the property before reporting an opinion. In cases where the Inspector requests an ‘agreed’ permitted area and apportionments the DV should make an internal inspection of the property whenever possible.

8.76 Reporting

The DV’s report to the Inspector should take the form of a memorandum containing recommendations and must in every case be accompanied by a suitable plan. Where apportionments have been requested the memorandum should also be accompanied by a completed VO 1011 (see Appendix 5).

8.77 Unagreed cases

Where the DV is unable to reach agreement, the reporting procedure to be followed is dependent upon whether the issue in dispute concerns either:

a) the extent and location of the permitted area and/or the method of any apportionments, or

b) the amount of any land or the amount of any apportionment.

For cases within (a) a report should be made to the Inspector stating the DV’s opinion and the circumstances surrounding the case. The Unagreed/DOA procedures laid down in Section 6 (Part 5) are not appropriate in these cases. The DV should nevertheless personally ensure that the opinions expressed in the report can be defended before the Commissioners if required.

In cases where the issue in dispute relates solely to the value of any land or the amount of any apportionment the Unagreed/DOA procedures described in Section 6 (Part 5) should be followed.

8.78 Approval for permitted areas exceeding 2 hectares

Where it is proposed to recommend a permitted area in excess of 2 hectares the caseworker should, before reaching any agreement, seek the personal approval of the DV. The DV, before giving such approval, has responsibility for ensuring that the caseworker has adopted the proper criteria. In any cases of doubt the DV should forward the file with observations to CEO. The DV’s report to the Inspector should include confirmation that the permitted area has been approved by the DV personally.

8.79 Appeals

Where an appeal arises following an unsuccessful negotiation of a s.222 TCGA 1992 case the DV will usually be required to appear as an expert witness before the Commissioners to give evidence relating to the opinion of the permitted area and method of apportionment. Hearings will normally be before the General Commissioners unless there is agreement to appear before the Special Commissioners.

It should be noted that before the VO witness agrees to appear, formal approval must be given by CEO. After the DV has made an unagreed report the Inspector should normally refer the papers to Capital & Savings CGT. If the case is to proceed to a hearing, C&S CGT will notify CEO who will then call for a brief report and the DV’s file. Instructions on how to proceed will then be given to the DV. When the DV is advised to proceed by CEO work should commence on the preparation of the expert’s report bearing in mind the general guidelines laid down in Appendix 39. The DV should not indicate to the Inspector that the case is ready to proceed until the report has received approval from CEO. DVs should however maintain close contact and liaison with the Inspector at all times.

The Commissioners are empowered to determine the extent of the permitted area. Where valuations or apportionments remain in dispute reference to the Lands Tribunal will be made later.