SPC00594

Capital Gains Tax; Reinvestment Relief; whether company a qualifying company; whether taxpayers entitled to Reinvestment Relief on disposal of shares by partnership; Taxation of Chargeable Gains Act 1992 sections 164A, 164G, 164I

THE SPECIAL COMMISSIONERS

	MR D S MACLEAN	Appellants
                                             MRS L M MACLEAN

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

		

			Special Commissioner:   J GORDON REID QC, F.C.I.Arb

Sitting in public in Edinburgh on 12 May and 20 December 2006

for the Appellant:  Colin Tyre QC

for the Respondents:  Jane Paterson, Advocate (12/5/06), Eric J Brown, Solicitor, Inland Revenue (20/12/06)

© CROWN COPYRIGHT 2007

DECISION

Introduction

This decision relates to two appeals directed to be heard together and is concerned with the meaning of the words qualifying trades to be found in section 164G of the Taxation of Chargeable Gains Act 1992 (the “1992 Act”).  The taxpayers, husband and wife, have been assessed for the tax year 1995/96 in respect of the capital gains accruing on the sale by a partnership (Innseagan Holidays) of which they were the partners, of shares in a property company (Keep Issue Limited).  An amount equivalent to the capital gain was reinvested in another company (Highland Holidays Scotland Limited). HMRC (the “Revenue”) dispute the Appellants’ claimed entitlement to roll-over relief under section 164A of the 1992 Act.

A Hearing took place at Edinburgh on 12th May 2006 and 20th December 2006.  The Appellants were represented by Colin Tyre Q.C, instructed by Jeffrey Crawford, Chartered Accountants and Chartered Tax Advisers, Edinburgh.  He led the evidence of one of the appellants, Donald Stewart Maclean.  Jane Paterson, Advocate, was instructed by the Revenue Solicitors’ Office, Edinburgh.  She led no evidence.  Due to her indisposition on 20th December, the Revenue solicitor, Eric J Brown, at very short notice, completed the submissions outlined by Miss Paterson on 12th May. 

A bundle of productions was lodged along with a Statement of Agreed Facts.

Procedural History

This appeal has a tortuous history.  It began before the General Commissioners.  The Appellants were initially successful but an appeal to the Court of Session was allowed largely because, it would appear, the then Clerk to the General Commissioners failed to produce a draft Stated Case and resigned without doing so and without leaving adequate notes to enable a proper Case to be prepared.  The appeal was eventually remitted to the Special Commissioners in December 2005.

Issue

The issue between the parties, as identified by them, is whether Highland Holidays Scotland Limited (the “Company”) was a qualifying company within the meaning of section 164G of the Taxation of Chargeable Gains Act 1992 so that each taxpayer was entitled to Reinvestment Relief in terms of section 164A of the 1992 Act in respect of the gains accruing to each of them on the disposal by the partnership (Innseagan Holidays) in 1995/6 of shares in Keep Issue Ltd.

That issue turns largely on an analysis of the activities of the Company and whether it was carrying on a qualifying trade at the material time within the meaning of section 164 I of the 1992 Act.

The legislation

The relevant provisions of Chapter 1A of Part V of the 1992 Act as it stood for the purposes of this appeal, are as follows:-

164A Relief on re-investment for individuals

(1) Subject to the following provisions of this Chapter, roll-over relief under this section shall be available where— 
(a) a chargeable gain would (apart from this section) accrue to any individual (“the re-investor”) [on any disposal by him of any asset (“the asset disposed of”); and
(b) that individual acquires a qualifying investment at any time in the qualifying period.
………………

(8) For the purposes of this section, a person who acquires any eligible shares in a qualifying company shall be regarded as acquiring a qualifying investment unless…………..

164G Meaning of “qualifying company”

(1) Subject to section 164H, a company is a qualifying company for the purposes of this Chapter if it complies with this section.

(2) Subject to the following provisions of this section, a company complies with this section if it is— 

(a) an unquoted company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company's activities; 
…………………………….

164I Qualifying trades

(1) For the purposes of this Chapter— 

(a) a trade is a qualifying trade if it complies with the requirements of this section; and

(b) the carrying on of any activities of research and development from which it is intended that a trade complying with those requirements will be derived shall be treated as the carrying on of a qualifying trade.

(2) Subject to the following provisions of this section, a trade complies with this section if neither that trade nor a substantial part of it consists in one or more of the following activities, that is to say— 

(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments;

(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution;

(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;

(d) leasing (including letting ships on charter or other assets on hire) or receiving royalties or licence fees;

(e) providing legal or accountancy services;

(f) providing services or facilities for any such trade carried on by another person as— 
(i) consists, to a substantial extent, in activities within any of paragraphs (a) to (e) above; and

(ii) is a trade in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company providing the services or facilities;

(g) property development;

(h) farming;
…………………………..

 (4A) In deciding whether a trade complies with this section at a time falling on or after 29th November 1994 paragraphs (g) and (h) of subsection (2) above shall be ignored.

……………….
(9) A trade shall not comply with this section unless it is conducted on a commercial basis and with a view to the realisation of profits.

This Chapter of the 1992 Act was inserted by the Finance Act 1993 section 87 and Schedule 7 in relation to disposals made after 15th March 1993.  Further amendments were made in the Finance Act 1994 section 91, Schedule 11, the Finance Act 1995 section 46.  Yet further amendments were made by the Finance Act 1997 Schedule 17 in relation to disposals made after 26th November 1996.  The Chapter was eventually repealed by the Finance Act 1998 section 165 Schedule 27, Part III (32).

Facts

The Statement of Agreed Facts is in the following terms:-

“1.	Innseagan Holidays was a partnership between Mr D S Maclean and his wife Mrs L M Maclean.  Until January 1997 Innseagan Holidays operated a hotel land six services accommodation apartments.

2.	A capital gain of £123,565 before deduction of the annual exemption accrued to each partner on 19 December 1995 on the disposal by the partnership of 160 shares in Keep Issue Limited.

3.	An amount equivalent to the capital gain was reinvested on shares in Highland Holidays (Scotland) Limited (“the company”) on 27 August 1996 as follows:

	D S Maclean		124,000 £1 ordinary shares	= £124,000
	L M Maclean		124,000 £1 ordinary shares	= £124,000

	Total reinvested						   £248,000

4.	The company was an unquoted company and was not the parent company of a trading group.

5.	The company was incorporated on 7 August 1996 and commenced activities on 16 January 1997.

6.	The company submitted a CT41G to the Inland Revenue on 23 August 1996 with the nature of business to be carried on being `provision of serviced accommodation’.

7.	On 16 January 1997 the company purchased three apartments together with associated fixtures and fittings from Innseagan Holidays at a cost of £120,000.

8.	The company had two directors, Mr and Mrs Maclean.

9.	On 11 April 1997 the company purchased the remaining three apartments together with associated fixtures and fittings from Innseagan Holidays at a cost of £120,000.

10.	After 11 April 1997 Innseagan Holidays continued to operate Innseagan House Hotel as an hotel business.

11.	The company insured the apartments under a `Hotel Insurance’ policy.

12.	The following services were available to both apartment and hotel guests.  These services were not available to persons who were not resident in either the hotel or the apartments:

Reservation services
Cleaning
Laundry
Window Cleaning
24 hour Reception service
Breakfast
Lunch Pack
Dinner
Toiletries
Flowers
Miscellaneous supplies including toilet rolls, soap, bath mats, washing up materials, light bulbs etc.
Night Security
Map and Information room
Cocktail Bar and Lounge Facilities
Guest Information
Car Park

13.	The first five of the above services were charged by annual invoice from Innseagan Holidays to the company.  The invoice identified specific charges for reception, cleaning, supplies and sundries, laundry, and a management/administration charge.

14.	Certain other charges incurred by apartment guests, including meals, drinks, packed lunches and flowers, were charged to their apartment and then paid directly to Innseagan Holidays.

15.	The hotel was open from April to October each year but the apartments were open all year round.  During the months when the hotel was closed not all services were available to apartment guests.

16.	The restricted hotel drinks licence permitted both apartment and hotel guests to use the cocktail bar facility.  Non residents were excluded from using the cocktail bar facilities.

17.	Guests registering for apartments and hotel completed exactly the same process of registration.

From the evidence of the taxpayer Donald Maclean, whom I found to be generally reliable and credible (his reliability and credibility were not challenged), and the documents produced, I make the following additional findings of fact:-

18	The price charged to apartment guests included an element attributable to services charged by annual invoicing by the Partnership to the Company.

19	Cleaning services were carried out by employees of the Partnership.

20	The apartments in question have views of Loch Linnhe and the hills beyond.

21	The management and administration charge by the Partnership relates to existing services (already available to hotel guests, such as bar and restaurant facilities) which apartment guests were allowed to use should they so wish by dealing with and paying the Partnership direct for such services.  The basis upon which this charge was made, precisely how it was calculated, and the relationship between each service made available and the extra cost of making it so available, if any, is unknown.

22	Document 3.1 is a copy of information provided to apartment guests on their arrival at one of the Company’s apartments over looking Loch Linnhe.

23	The apartments were classified as self catering by the Scottish Tourist Board from about 1997.  The classification serviced apartments was not recognised as a category until about 2002 as set forth in Production 8.

24	Production 10 is the Report of the Directors and Financial Statements for the period for 7/8/96 to 31/12/97 for the Company.  The balance sheet [10.6] contains no entry for stock.  Likewise, in the profit and loss account for that period [10.9], there is no entry for the purchase of stock such as food and beverages.

25	Productions 25.1-6 are copy invoices dated 31/12/97, 31/12/98 and 31/12/99, addressed to the Company, and prepared by Mr Maclean.

26	Productions 26 and 27 are Reports of the Directors and Financial Statements for the years to 31/12/98 and 31/12/99 respectively for the Company.  The balance sheets contain no entries for stock.  Likewise, in the profit and loss account for these periods, there are no entries for the purchase of stock such as food and beverages.

27	Production 12.1-2 contains a financial analysis prepared by Mr Maclean relative to the year to 31/12/99.

28	Production 13 contains an analysis by Mr Maclean and is dated April 2006

29	Production 15 shows the Company’s Corporation Tax computation for the period 16/1/97 to 31/12/97.  These are based essentially on a Schedule D Case 1 Computation.  A Notice of Assessment for that period is likewise so based [Production 16.1].

30	The Partnership sold the hotel in 2001.

Finding 18 was proposed by Mr Tyre in the course of his submissions.  Mr Brown agreed to it.  Neither party submitted what the percentage or extent was of the “element” attributable to the services referred to in Finding 18.  Mr Tyre also proposed the following finding:- “ The management and administration charge by the Partnership was charged for management services in relation to the provision to apartment guests of food, drink and other facilities”.  This was said to relate to the services for which there was no express re-charge but was covered by the management charge; it was for the availability of bar and restaurant facilities and the map room.  Mr Brown submitted that the evidence did not justify the finding.  I consider that the more guarded finding which I have made (finding 21) is justified on the evidence.

Submissions

Mr Tyre relied upon Salisbury House Estate Ltd v Fry (1929) 15 TC 266,at 329-330,  Sywell Aerodrome v Croft (1941) 24 TC 126, at 136-7, Gittos v Barclay (1982) STC 390, at 395B and Griffiths v Jackson (1982) 56 TC 583 at 590D-591F, and 592H-593D.  He recognised that if all a proprietor did was to derive profit from letting or otherwise allow the occupation of land that would not be a trade; nor did it become a trade if the land had been improved to enhance the return from it e.g by furnishing it, or by maintenance and improvement designed to maximise the amount that can be charged.  However, he submitted, if the property was used as a vehicle for providing a service which consists of more than allowing temporary occupation, the activity is properly to be regarded as a trade.  The test was not a high one; the cases cited showed that the element of service need only be small.  The services provided here were (i) the temporary occupation of the room for which the guest paid the Company direct, (ii) the five services specified in Finding-in-Fact 13 (reservation services; cleaning; laundry; window cleaning; and the 24 hour reception service), (iii) the range of services made available to apartment guests for which there was no express re-charge but a management charge, namely the availability of bar and restaurant services and the use of the map-room, and (iv) the Company, while it did not buy in the food and drink, it managed or procured their provision 

The statutory reference to letting did not add anything as that was not, in any event, a trade.

From the viewpoint of the guests they were receiving the services of a hotel and not just self catering accommodation.  He relied on paragraph 12 of the Statement of Agreed Facts.  These services were everything you would expect from a small hotel.  These services are being provided by the Company.  It does not matter that some services were provided and paid for by the Partnership or that some hotel facilities were not available over the winter.

Miss Paterson, for the Revenue, submitted that (i) for the purposes of reinvestment relief, the Company was not carrying on a trade, (ii) if that is incorrect then the Company was not carrying on a qualifying trade, (iii) if that, too, is wrong, then the Company’s winter activities amounted to another purpose which was neither a trade nor a qualifying trade, and that purpose was not incidental, and (iv) even if the Company’ summer activities were those of a hotel which would have attracted reinvestment relief, relief was precluded by section 164G(2)(a) of the 1992 Act.

The letting of furnished accommodation is deemed to be a trade by virtue of the Income & Corporation Taxes Act 1988 sections 15, 53, and 503.  Reinvestment relief does not apply to deemed trades.

From the Company’s point of view, it only provided the first five services noted in paragraphs 12 and 13 of the Statement of Agreed Facts.  Even if it procured the availability of hotel services, it did not do so until January 1997; there is no continuing procurement.  Paying for catering services is not a trade.  It is the activities of the entity that have to be considered.

In amplification of the above, Mr Brown submitted (i) the facts here were similar to Gittos, (ii) the Company was simply a holiday letting company; it had no employees; cleaning was contracted out; food and drink was provided by the Partnership, it did not carry on a trade, (iii) following Griffiths there was a limited change in the legislation; commercial letting of furnished holiday accommodation was deemed to be a trade the profits of which were chargeable under Case 1 of Schedule D by virtue of section 503 of the Income and Corporation Taxes Act 1988, (iv) various statutory reliefs were provided to taxpayers who carried on the business of furnished holiday lettings, namely sections 241, 242, 152-157, 165, 253 of and Schedule 6 to the 1988 Act; reinvestment relief under section 164A was not mentioned, (v) even if the Company was carrying on a trade, it was not a qualifying trade because all of its income was derived from licence fees (section 164I(2)(d)); moreover there was no occupation by the Company, (v) the Rotunda Hospital case was distinguishable as there was a caretaker employed by the governors to look after the rooms (1918 7 TC 517 at 592, and 593, (vi) in Salisbury, the taxpayer employed cleaners but still the conclusion was that its activities were not a trade, (vii) the second additional proposed finding was not justified on the evidence; there was no express contract between the Company and the Partnership, but merely a retrospective re-charging of costs exercise; the services were in fact provided by the Partnership and not the Company, (viii)  the Company did not exist wholly for the purpose of carrying on a qualifying trade;

He founded on Productions 10, 15 and 16 [see findings 24 and 29 above] to support the argument that what the Company did was to let out furnished holiday accommodation.  What the Company did was just what would be expected of a holiday letting company.  It provided cleaning, linen and towels; it also provided fact sheets.

Decision

According to the Appellants’ argument the acquisition of the qualifying investment was the purchase of the eligible shares in a qualifying company.  That the shares were eligible is not disputed.  They were acquired, according to paragraph 3 of the Statement of Facts, on 27/8/96.  At that stage, the Company had not purchased the apartments.  It did not commence activities until 16/1/97 and did not purchase the apartments until that month (three apartments) and 11th April 1997 (a further three apartments) [Statement of Agreed Facts paragraphs 5-9)].  However, parties were agreed that there were no timing issues in this appeal and I therefore do not consider these matters further.

In the Rotunda Hospital case, concert, exhibition, refreshment and ball rooms were hired out to persons for the purposes of musical or dancing entertainments.  The services provided were not regarded as mere incidents attached to the letting of the rooms themselves.  The rooms were prepared by the Keeper of the Rotunda Rooms, who remained on the premises at all times, attending to the lights and fires and generally regulating the conduct and behaviour of the patrons. The owners equipped the rooms for these purposes with seating, heating and lighting.  The relationship of landlord and tenant was not created (593); a right or licence was granted to use the rooms, fixtures, fittings and services.  

The various decisions in this case as it progressed to the House of Lords, highlight the uncertainties of the law in this area.  The Special Commissioners were of the opinion that the profits derived from letting the Rotunda Rooms were assessable under Schedule D.  On appeal to the King’s Bench, in Ireland, the appeal was, by a majority, allowed.  The Court of Appeal in Ireland affirmed that decision, again by a majority (O’Connor MR dissenting).  The House of Lords decided in favour of the Crown and thus reversed the decisions in the courts below.  In the House of Lords, the essential argument was that the facts found disclosed that the Respondents carried on a trade (at 577).  This was accepted, the trade being the providing and letting rooms for entertainments (page 585, 592).  The various services were not regarded as mere incidents attached to the letting of the rooms themselves.  There are, however, a number of passages which are difficult to reconcile with the modern treatment of furnished letting (see pages 580, 582, 583 and 584).

Salisbury (heard together with City of London Real Property Company Ltd) concerned large unfurnished offices (Salisbury House) and offices shops and residential flats.  The landlord, Salisbury, granted leases of 3-21 years of unfurnished offices and provided lighting, heating, caretaking and other services from which it derived profit; some of the services were optional and no charge was made if the service was not taken up; the profit from the provision of these services was agreed to be assessable under Schedule D.  Salisbury retained an office for its own use within the building.  The issue was whether all its receipts including rent were assessable under Schedule D.  The taxpayer provided and operated the lifts and provided uniformed staff within the building, as well as cleaners, lighting, a housekeeper, and concierge services.  Similar services were provided by City for which charges were made; the profit therefrom was also agreed to be assessable under Schedule D.  The House of Lords held that liability to tax in respect of the rents was covered by Schedule A and the rents could not be brought into the computation of any liability under Schedule D.  It is of some interest to note that to some extent the issues were discussed in terms of whether a person capable of being assessed under Schedule A could be said in respect of his income from land to be earning profits from “trade” (see pages 315-316, and 321, 329-330).  Lord Macmillan observed that the relatively insignificant services for which the landlord made charges to its tenants were not sufficient to convert the company from a landowner into a trader although the profits so made fell to be charged to tax under Schedule D (at 330).

In Sywell, the underlying principles are discussed at some length by Lord Greene MR.  However, the factual background, land used as an aerodrome, was very different.  It is of some interest to note that the Court of Appeal rejected the Crown’s argument that the taxpayer was carrying on certain businesses vicariously (page 134).  His Lordship, albeit in the context of contrasting Schedule A with Schedule B, described profits falling under Schedule A as those made by an owner granting or limiting part of his rights as owner of the land in favour of others (at page 136).  It seems to me that the granting of a limited right of occupancy would fall within that general statement.

In Griffiths, the taxpayers provided furnished lets, mainly to students with contractual provisions about use of the communal bathroom; for some lets, they provided cutlery, pots and pans, bed linen and towels; a laundering service was also provided; the nature of the services and facilities provided varied depending on the nature of the let.  The decision demonstrates that the question on which side of the line the taxpayer’s activities fall may be a narrow one (at 593C).  It also demonstrates that the principle that income derived from the exercise of property rights properly so-called by the owner of land is not income derived from the carrying on of a trade, is embedded in tax law (at 590D and 593G).

Gittos concerned the sub-letting of two holiday villas within a holiday village in Cornwall, where a wide range of facilities and services were available within the holiday complex; the taxpayer provided cleaning, a caretaker, general maintenance and arranged for the collection of refuse.  The General Commissioners and, on further appeal, Goulding J, rejected the taxpayer’s argument that the enterprise was in the nature of a trade.  Neither gave reasons nor pointed to particular facts tipping the balance one way or the other.  

Guiding Principles

From the authorities cited, I derive, albeit with some difficulty, the following principles:-

1.	Income derived from the exercise of property rights properly so-called by the owner of land, that is to say the exploitation of the right of property and the right of occupation, is not income derived from the carrying on of a trade.  

2.	Income derived by an owner from granting or limiting his rights as owner of the land in favour of others is not regarded for income tax purposes as the carrying on of a trade.  Thus, income derived from the commercial letting of furnished accommodation, whether for a short or long period, is not generally regarded as income derived from carrying on a trade, even although this activity may properly be described as the carrying on of a business.  Business is a wider concept than trade.  

3.	Activities over and above the mere exploitation of heritable property or turning to profitable account the land, of which he is the owner, may be significant enough to classify a man’s business as a trade.  Whether the provision of services or other activities are significant enough to cross the line between land ownership and commercial enterprise in land is a question of fact and degree depending upon the nature and extent of the operations or activities concerned.

4.	However, the fact that an owner makes the visit to his land by a licensee more attractive by providing various services, e.g. keeping the property in a proper state and condition will not turn exploitation of property rights into a trade.

5.	Whether income is derived from the location of the land, which is the normal manner in which property in land yields revenue, is a relevant consideration.

Like so many areas of law, principles can be stated but their application to any given set of facts may be attended with the greatest difficulty.  I have not found the reasoning in the authorities particularly easy to apply to the circumstances of this appeal and such principles as I have been able to extract, I have found to be of limited value and of questionable utility in the modern context of carrying on the business (to put it neutrally) of providing serviced apartments.

It is, however, reasonably clear that the provision of furnished holiday lets is not generally regarded for the purposes of income tax as the carrying on of a trade.  Under section 503 of ICTA, a commercial letting of furnished accommodation is to be treated as a trade.  This deeming provision was apparently enacted in the light of dicta in Griffiths (at 593E-G).  However, that deeming provision does not assist the Appellants here.  Rather, it points the other way.

In my view, the services provided by the Company are typical of the services provided under a holiday letting arrangement.  These are the services specified in finding of fact 13.  The other services founded upon by Mr Tyre are not truly services provided by the Company.  These are activities carried on by the Partnership.  They provide the services having purchased all necessary goods (food and beverages for example).  They charge the holidaymakers who pay the Partnership.  Some holidaymakers may never enter the restaurant or bar and may never avail themselves of services other than those specified in finding-of-fact 13.  

The evidence and documents produced by Mr Maclean seem to me to be an ex post facto analysis which on close examination simply does not support the proposition that the Company provides a significant number services through its own activities to constitute its furnished holiday letting business a qualifying trade for the purposes of section 164I of the 1992 Act.  I consider that it is straining the facts to say that the Company procured the provision of the bar and restaurant facilities.  The availability of these services was simply a convenience which guests at the apartments could take advantage of if they so wished.  They could just as easily have been directed to another nearby hotel and treated as if they were residents there.  I do not consider any such arrangement makes any significant difference to the classification of the Company’s activities for present purposes.  The services thus procured do not seem to me to be significant and do not enable the activities of the Company to be classified as a trade for tax purposes.

While it is true that a trade can be carried on by procuring the provision of services from third parties (e.g. a farmer may engage an agricultural contractor to plough his fields, another to plant the crop, and a third to harvest it and still be carrying on the trade or business of farming), the services procured here are relatively insignificant compared with the main activity of letting furnished holiday accommodation.  While the analogy may not be perfect, in the example, the services procured are all essential to the activity of farming.  The farmer would be charged for the seeds sown and would normally at least receive payment for the sale of the harvested crop.  Here, the food and drink is bought and sold by the Partnership and not the Company; the Partnership engages the staff, incurs the cost of purchase and staff and retains the sale proceeds.  The availability of these services is not essential to the activity of letting out furnished holiday accommodation.  

Even if the activities of the Company constituted a trade, I am of the opinion that the trade was not a qualifying trade.  Its income was derived from payments by holidaymakers for the use of the apartments to put it broadly.  That is in the nature of a payment for the grant of a right to use or occupy a holiday apartment.  A limited right of occupancy is granted.  In other words that is a licence fee within the meaning of section 164I (2)(d).  Receipt of payment of such fees constituted a substantial part of its trade.  For that reason too, the appeal must fail.

Many of the services relied upon by the appellants to bring themselves within the meaning of qualifying trade disappear over the winter months when the hotel is closed.  Even if the Appellants’ argument were sound for the summer months, it cannot apply between October and March when the hotel is closed. For several months of the year the Company existed for a purpose which was not the carrying on of a qualifying trade.  This must have had a significant effect on the extent of the Company’s activities during the winter months.  The more the Appellants rely on the procuring of the provision of bar and restaurant facilities and services between April and October the more difficult the argument becomes in relation to the remaining five months.  If the presence of these “procured” services is essential to “cross the line”, then their absence or the absence of some of them over the winter months must also be critical.  The provisions of section 164G(2)(a) cannot be met.

The absence of reinvestment relief from the list of statutory reliefs available to taxpayers who carry on the business of providing furnished holiday lettings, while not conclusive, is at least consistent with the decision I have reached.

I therefore find and determine that Highland Holidays Scotland Ltd was not a qualifying company within the meaning of section 164G of the Taxation of Chargeable Gains Act 1992.  Neither taxpayer is entitled to reinvestment relief in terms of section 164A of the 1992 Act in respect of the gains accruing to each of them on the disposal by the partnership (Innseagan Holidays) in about 1995/1996 of shares in Keep Issue Ltd.

Result

The appeal is dismissed.  It was agreed that, in that event, I should determine the assessment in the figures agreed in paragraph 2 of the Statement of Agreed Facts.  

I shall therefore determine the Assessment relating to Mr Maclean for the year 1995/96 ending 5 April 1996, Notice of which was given on or about 19/3/96 [Production 17.3 and 17.4] in the sum of ONE HUNDRED AND TWENTY FOUR THOUSAND POUNDS (£124,000.00).

I shall also determine the Assessment relating to Mrs Maclean for the same period, Notice of which was given on or about 19/3/96 [Production 17.5 and 17.6] in the sum of ONE HUNDRED AND TWENTY FOUR THOUSAND POUNDS (£124,000.00). 

J GORDON REID QC, F.C.I.Arb
SPECIAL COMMISSIONER

RELEASED:  19 February  2007

SC 3006-7/2006