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

Nellsar’s Ground 5 is that the FTT erred by rejecting Nellsar’s apportionment of the consideration paid for the care homes for SDLT purposes as not “just and reasonable”.

The relevant legislation (paragraph 4 of Schedule 4 to the Finance Act 2003) is set out at paragraph ‎22 above. Essentially, this provides that consideration attributable in part to a land transaction and in part to another matter shall be apportioned on a just and reasonable basis. In addition, paragraph 4(3) to Schedule 4 provides that where any consideration is given for what is in substance one bargain it shall be treated as given for all the elements of the bargain.

Mr Farrell submitted that even if Nellsar had not drawn up GAAP-compliant accounts, its allocation of the consideration in the agreements by which it purchased the properties was just and reasonable. In support of this submission, Mr Farrell cited the decision of the House of Lords in Leedale v Lewis [1982] STC 835. This was a case involving the apportionment of capital gains accruing to non-resident trustees of a settlement made by a UK domiciled and resident settlor. The statutory provision provided that the amount of any gain “shall be apportioned in such manner as is just and reasonable between persons having interest in the settler property….” The issue was how an apportionment was to be undertaken between discretionary beneficiaries. Lord Wilberforce said at page 843:

“3.

The words, in sub-s (2), 'in such manner as is just and reasonable' and 'as near as may be, according to the respective values of those interests' suggest a broad rather than an actuarial approach in which all relevant considerations may be taken into account. They permit (inter alia) consideration of the settlor's letter of intent which shows, at least, that the settlement was to be regarded as for the benefit of the grandchildren, not of the settlor's two children.”

Lord Scarman expressed his view on the manner in which the apportionment was to be made at page 847:

“The apportionment is to be carried out on a 'just and reasonable' basis so that 'the chargeable gain is apportioned, as near as may be, according to the respective values of those interests'. The governing words are 'just and reasonable': they confer on the inspector and the commissioners a wide latitude in judgment. The task is to apportion the chargeable gain, as near as may be, according to respective values. The language is apt to cover a valuation of interests where factors other than the market value of a property interest have to be considered. 

…

For the purpose of valuation, the intention of the settlor, as evidenced by the deed and its recitals, is a significant factor to which value is to be attached to the extent that is just and reasonable and in a manner which, as near as may be, reflects the respective interests under the settlement. Further, the letter of intent, though not by itself of great weight, is admissible as supporting the intention manifested in the settlement itself.”

From these passages, Mr Farrell contended that the meaning of “just and reasonable” meant that factors other than strict market valuations of respective interests could be taken into account, including the intention of the parties. A similar approach, Mr Farrell argued, was dictated by paragraph 105(3)(b) of Schedule 29 which, where the apportionment is otherwise than in accordance with GAAP, required the apportionment to be on a just and reasonable basis. The FTT had erred in not according to Nellsar a “wide latitude in judgment”, in which all relevant factors could be taken into account, as indicated by Lord Scarman. Therefore, Nellsar was entitled to use figures which it did in its SDLT return, whether or not those figures complied with GAAP. Mr Farrell also referred to the decision in Orsman v HMRC [2012] UKFTT 227 (TC) (“Orsman”) as authority for the proposition that a just and reasonable apportionment could reflect factors other than market values. The FTT had erred in law in not taking a broader approach of what was just and reasonable.

The FTT’s consideration and conclusion on the “just and reasonable” apportionment issue in relation to SDLT is summarised at paragraphs ‎72-‎76 above.

We agree with the FTT’s view (FTT [222]) that Leedale v Lewis “involved a very different legal and factual context” and is of little assistance in the present case. Phrases such as “just and reasonable” derive their meaning from the purpose and context of the statutory provision in which they are found and it cannot be assumed that the same words will have identical meanings in different statutory provisions. Moreover, we agree with Mr Jones’ submission that there was nothing inconsistent in the approach adopted by the FTT in Orsman and the FTT’s decision in this case. The FTT in the present appeal considered that an apportionment based on independent market values provided a more appropriate basis for an apportionment. The FTT in deciding that the apportionment should be based on the market values of the separate assets was coming to an evaluative conclusion which we consider was well within the bounds of what it was entitled to decide and that we should be hesitant to substitute our judgment for that of the FTT.

Therefore, we have concluded that Nellsar’s appeal on Ground 5 should be dismissed.

HMRC appeal against the Decision on two grounds.