UT-2023-000116; - [2025] UKUT 00164 (TCC)

This is an appeal brought by Nellsar Ltd (“Nellsar”) against the decision of the First-tier Tribunal (“FTT”), released on 11 August 2023 (“the Decision”). The FTT panel consisted of Judge Poole, Mr Law FCA CTA and Mr Perry FRICS.

Nellsar bought five care homes (“the properties”) as going concerns between April 2004 and May 2007. The main point at issue in this appeal relates to the amounts to be recognised, capitalised and subsequently amortised for corporation tax purposes in respect of goodwill arising on these acquisitions. Broadly, the amount that Nellsar can amortise for corporation tax purposes depends on the correct accounting treatment of the acquisition. In general terms, the purchase price of the nursing homes has to be allocated between the underlying properties, fixtures and fittings with the remainder of the purchase price being allocated to goodwill.

Again, in general terms and at the risk of oversimplification, the greater the amount of the purchase price allocated to the properties under generally accepted accounting practice (“GAAP”) the smaller the amount that can be allocated to goodwill and, consequently, the smaller the amounts that can be amortised for corporation tax purposes in respect of the acquisition of that goodwill. Conversely, the smaller the amount of the overall purchase price that can be attributed to the properties, the greater the amount that can be allocated to goodwill leading to higher deductions for corporation tax. The value to be allocated to fixtures and fittings was not in dispute. Since the value of goodwill was effectively a balancing item, this appeal revolves around the correct value for GAAP purposes to be allocated to the properties themselves.

The FTT decided that Nellsar’s accounts, which accounted for the acquisition of the properties using the depreciated replacement cost (“DRC”) basis, were not prepared in accordance with GAAP. Instead, the FTT decided that GAAP required Nellsar to account for the acquisition of the properties on a market value basis modified by special assumptions.

In summary, the main issue in this appeal is whether there was sufficient evidence before the FTT to reach that conclusion. Essentially, therefore, Nellsar challenges the FTT’s decision mainly on Edwards v Bairstow (Footnote: ¹) principles. Nellsar appeals on four grounds in relation to this or associated issues.

In addition, the FTT decided an issue relating to Stamp Duty Land Tax (“SDLT”) concerning the chargeable consideration given for the properties. This issue depended on a “just and reasonable” apportionment between the properties and the other assets in accordance with paragraph 4 of Schedule 4 to the Finance Act 2003. Nellsar also appeals against the FTT’s conclusion relating to SDLT – its fifth ground of appeal.

Furthermore, the Respondents (“HMRC”) have also appealed on one particular aspect of the Decision. This concerned the question whether the FTT held that GAAP required certain assumptions to be made in the valuation of the properties.

The FTT did not resolve the actual valuation of the properties but rather the principles underlying their valuation in accordance with GAAP. The issue of the actual value of each property is a matter falling within the jurisdiction of the Lands Chamber of the Upper Tribunal.

Nellsar appeals with the permission of this Tribunal (Judge Jones) granted on 14 February 2024. The FTT gave permission to HMRC to appeal on 26 October 2023.

For the reasons set out below, we dismiss Nellsar’s appeal and also dismiss HMRC’s appeal and affirm the Decision.

We wish to thank counsel and those instructing them for their helpful and informative submissions.