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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Employment income: transfer of real property to employees: Langham v Veltema

Section 62 ITEPA 2003

Where land is transferred by an employer to an employee at less than its market value, this usually represents earnings chargeable under Section 62 ITEPA 2003 equal to its open market value less what the employee pays for it (see EIM00540 onwards). Land includes a house and most other forms of residential property, for example a flat.

Referral to Valuation Office Agency (VOA)

In all cases where land is transferred to a director or employee, an Inspector must consider whether the transfer is at full value and, if not, whether the undervalue is a profit from the directorship or employment. Where the property is in the United Kingdom the VOA must be consulted (not on form CG20) in all cases where the transfer appears to be at less than full market value.

Failure to consult the VOA as soon as the information is available may result in the expiry of time limits before tax can be assessed on employment income. 

In Langham v Veltema, (STC3717), an SA return submitted by a director showed a house transferred to him for £100,000. There was nothing on the return to indicate the basis for this valuation. The Inland Revenue should have consulted the District Valuer (DV), but it did not do so. Subsequently the company accounts were submitted showing the £100,000 value on transfer of the property, and the Inland Revenue requested an opinion on the valuation from the DV. The DV agreed with the taxpayer a valuation of £145,000.

By the date of agreement of the valuation the time limit had expired for the Inland Revenue to amend the taxpayer’s SA return to include the full transfer value of £145,000. A further assessment for £45,000 was raised on the basis that the Inland Revenue could not have been expected from the information on the return to know the transfer took place at undervalue. The taxpayer appealed on the basis that the time limit for the Revenue to amend his self assessment had expired and there were no grounds for the issue of a “discovery” assessment since the transfer had been disclosed in the SA return.

The Court of Appeal dismissed the appeal, as the return had not alerted the Revenue to the possible insufficiency of the self assessment, so the Inspector could not have been reasonably expected to be aware of it, without consulting the DV. Hence when the true value of the house came to light later, the Revenue was justified in issuing a “discovery” assessment.

Nonetheless if the DV had been consulted at the proper time it would have been apparent, before expiry of the relevant time limits for amending the self assessment, that the transfer took place at undervalue. Consequently this case should serve as a reminder that when an asset is transferred between an employer and an employee, the DV must be consulted immediately for an opinion of the valuation provided.

For more information on consulting the VOA see EIM08002.