In Oriel Developments Ltd v HMRC [2019] TC7306, the First Tier Tribunal allowed an appeal despite an invalid Rollover Relief claim. The discovery assessment raised was stale so was not valid.
Where Capital Gains Tax (CGT) Rollover Relief applies, a claim is made to defer a capital gain made on the disposal of a business asset (including compulsory acquisitions) by rolling it over against the cost of another business asset.
- The new asset must be acquired within 12 months before the disposal, or within 3 years after.
“Discovery” is the power that allows HMRC to reopen closed periods where they believe there is an underpayment of tax, including where a relief has become excessive, by way of issuing an assessment.
- Where a discovery is “stale” the assessment is not valid.
Oriel sold a piece of land under a compulsory purchase order.
- In their corporation tax return for the 2010 period they made a provisional rollover relief claim under s247 TCGA.
- Within the 3 year period Oriel reinvested the entire proceeds of sale in constructing an industrial workspace on land it already owned.
- HMRC wrote denying their claim for rollover relief in August 2014 on the basis that the reinvestment was not applied in acquiring other land as the legislation specified.
- A closure notice was made in September 2015 purporting to amend the corporation tax return. An assessment was then raised by a different HMRC officer in May 2018.
- HMRC argued that:
- The discovery was not stale because they were awaiting the outcome of other discovery cases,
- The 2018 discovery by the second HMRC officer was the relevant discovery.
- One of the arguments of Counsel for the company was that HMRC could have issued a protective discovery assessment in these circumstances; HMRC disagreed.
The discovery issue:
The judge said he was bound to follow the Court of Appeal's decision in Raymond Tooth v HMRC [2019] EWCA 826 as the facts were the same.
- The discovery in 2018 was simply that by seeking to amend the tax return rather than issuing an assessment, HMRC had used the wrong mechanism for curing the deficiency in tax resulting from the invalid claim to rollover relief.
- This meant that the discovery in 2015 was the relevant discovery.
- The discovery was therefore stale and invalid.
The judge agreed with the appellants counsel that HMRC could have issued a protective assessment and dismissed HMRC’s reasons for not doing so.
The rollover relief claim:
The judge found the rollover claim to be invalid;
- “to describe the construction of buildings on existing land as falling within the phrase 'acquiring…land' would run counter to the general approach in the TCGA and to established principles of land law."
- When the buildings were constructed on the existing land, he said, Oriel did not acquire a new interest in land but merely enhanced its existing interest.
Nevertheless, the appeal was allowed based on the decision on discovery. HMRC have appealed to the Upper Tribunal.
Links to our guides:
CGT reliefs: disposal of a business or its assets
Rollover Relief: At a glance
Discovery Assessments
Discovery assessment: time limits
External link: