What methodology is ‘just and reasonable’ may vary from case to case.
The requirement to apportion an amount on a ‘just and reasonable’ basis recurs throughout the tax code. Past decisions of the courts have afforded little guidance as to the interpretation of the phrase, and the statute none at all.
In Marcus & Marcus Ltd v HMRC [2022] UKFTT 145 (TC) (reported in Tax Journal, 20 May 2022) the phrase was considered in the context of multiple dwellings relief (MDR) from SDLT.
The company’s business was the provision of supported living and other support and care services for adults with autism and/or a learning difficulty. It bought for £875,000 a four bedroomed detached house for use in its business. The property was particularly attractive because of the outbuildings. One of these had previously been used to run a day nursery but could be used as two additional dwellings, separated from the main house, which were ideally suited to the needs of two particular clients of the company.
There were two further outbuildings – an office and summerhouse or shed – and the question before the tribunal was essentially whether each of those buildings should be lumped in with the main house or with the nursery/dwellings when apportioning the £875,000 consideration for MDR purposes. But the wider interest of the case lies not in the question of how the assets should be grouped, but in the tribunal’s comments on the basis on which any apportionment should be made.
The company and HMRC had agreed that the apportionment would be made by reference to the size of the floor areas of the respective buildings. Notwithstanding that agreement, the tribunal nonetheless addressed the question whether that was a ‘just and reasonable’ basis.
What methodology is ‘just and reasonable’ may vary from case to case and will depend on the facts and circumstances of the case. The tribunal listed the candidates as including (among others):
market value;
size;
value to the appellant on the basis of intended use; and
value to a hypothetical purchaser such as a developer.
In the present case, the tribunal was content to ‘sign off’ the floor area method (despite HMRC’s own valuer having commented in an internal note that this was ‘really pushing the envelope in terms of trying to reach an amicable settlement to your case which is particularly favourable to the [taxpayer]’) mainly because it regarded the nursery as ‘at least as important as the Main House given that the rare configuration of the Annexe made it ideal for use as accommodation for two particularly challenging clients’ and the other outbuildings as ‘also important in expanding the services and facilities that the Appellant could offer to its residential and non-residential clients.’
So: confirmation that there is no ‘one size fits all’ approach to what is ‘just and reasonable’ when it comes to apportioning. Just whatever is, er … just and reasonable.
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Marcus: just and reasonable apportionment
What methodology is ‘just and reasonable’ may vary from case to case.
The requirement to apportion an amount on a ‘just and reasonable’ basis recurs throughout the tax code. Past decisions of the courts have afforded little guidance as to the interpretation of the phrase, and the statute none at all.
In Marcus & Marcus Ltd v HMRC [2022] UKFTT 145 (TC) (reported in Tax Journal, 20 May 2022) the phrase was considered in the context of multiple dwellings relief (MDR) from SDLT.
The company’s business was the provision of supported living and other support and care services for adults with autism and/or a learning difficulty. It bought for £875,000 a four bedroomed detached house for use in its business. The property was particularly attractive because of the outbuildings. One of these had previously been used to run a day nursery but could be used as two additional dwellings, separated from the main house, which were ideally suited to the needs of two particular clients of the company.
There were two further outbuildings – an office and summerhouse or shed – and the question before the tribunal was essentially whether each of those buildings should be lumped in with the main house or with the nursery/dwellings when apportioning the £875,000 consideration for MDR purposes. But the wider interest of the case lies not in the question of how the assets should be grouped, but in the tribunal’s comments on the basis on which any apportionment should be made.
The company and HMRC had agreed that the apportionment would be made by reference to the size of the floor areas of the respective buildings. Notwithstanding that agreement, the tribunal nonetheless addressed the question whether that was a ‘just and reasonable’ basis.
What methodology is ‘just and reasonable’ may vary from case to case and will depend on the facts and circumstances of the case. The tribunal listed the candidates as including (among others):
market value;
size;
value to the appellant on the basis of intended use; and
value to a hypothetical purchaser such as a developer.
In the present case, the tribunal was content to ‘sign off’ the floor area method (despite HMRC’s own valuer having commented in an internal note that this was ‘really pushing the envelope in terms of trying to reach an amicable settlement to your case which is particularly favourable to the [taxpayer]’) mainly because it regarded the nursery as ‘at least as important as the Main House given that the rare configuration of the Annexe made it ideal for use as accommodation for two particularly challenging clients’ and the other outbuildings as ‘also important in expanding the services and facilities that the Appellant could offer to its residential and non-residential clients.’
So: confirmation that there is no ‘one size fits all’ approach to what is ‘just and reasonable’ when it comes to apportioning. Just whatever is, er … just and reasonable.
