CG64020 - Entrepreneurs’ Relief - “disposal of part of a business”: meaning – case law
Atkinson v Dancer (61TC598): Mannion v Johnston (61TC598)
McGregor v Adcock (51TC692)
For many years Mr Adcock had carried on a mixed farming business
- arable, pigs, beef and hay - on 35 acres of land owned by him. In
1973 he obtained outline planning permission on 4.8 acres, which he
then sold in October 1973.
The Commissioners allowed retirement relief on the grounds
that the sale by a farmer of any of the farmland constituted a
disposal of part of the business. In their view, a farming business
was “the gaining of saleable produce, both animal and
vegetable, from the occupation of land with the aim of earning a
profit.”
In the High Court Fox J drew a distinction between the
business and the individual assets used in the business. The sale
of farmland alone was not necessarily a disposal of part of the
business, merely a factor to be taken into account in deciding
whether there had been such a disposal. On the facts of the case
substantially the same business continued after the sale of the 4.8
acres as had been carried on before. There was no disposal of any
part of that business and relief was not due.
This case draws out the fundamental distinction between the
sale of a part of a business and the sale of individual business
assets.
Atkinson v Dancer (61TC598): Mannion v Johnston (61TC598)
Mr Dancer farmed 89 acres, 22 of which were freehold and the
remainder tenanted. He carried on a mixed farming business
including calf, beef and sheep rearing and some arable land. He
took up egg production in the 1970's. By March 1983 however he had
reduced his activities considerably. In December 1982 he entered
into a conditional contract to sell 9 acres of the farmland. The
condition was satisfied in December 1983 and a gain arose then on
which he sought retirement relief.
Mr Johnston farmed 78 acres of land jointly with his sister.
Until 1975 it was a dairy farm but he then changed to beef rearing
with a few acres of corn and some potato growing. Ill-health in
1982-83 caused him to decide to retire partially and to sell part
of the farm. He sold 17 acres in April 1984 and a further 18 acres
to the same purchaser in December 1984. He sought retirement relief
on both sales.
Peter Gibson J held that
- whether there had been a disposal of the whole or part of the
business or not was in each case a question of fact;
- in neither case was there such an interference with the whole complex of activity as to amount to a disposal of part of the business on each sale of the bare land.
Pepper v Daffurn (66TC68)
Mr Daffurn had a 113 acre farm on which he kept beef cattle and
sheep. In 1986 he sold 83 acres of the farm (including the
farmhouse). He continued farming on a reduced scale, and also
changed from rearing to grazing cattle.
There was no dispute that the 1986 disposal attracted
retirement relief. But Mr Daffurn retained a covered cattle yard
from that sale. After an initial refusal he obtained planning
permission for development of the yard in 1987. He sold the yard in
1988. The Commissioners allowed relief on the grounds that the sale
of the yard was a disposal of part of the business.
Jonathan Parker J reversed that decision. In his view Mr
Daffurn had in mind to sell part of the land at an advantageous
price. With a view to that sale he changed the nature of the
business so that he no longer required the land in question for the
purpose of the business. Because of that change the sale of the
yard in 1988 was simply the sale of a surplus business asset. There
was no disposal of any part of his business in 1988 when the yard
was sold. And it was not legitimate to regard the yard sale as part
of the disposal which occurred in 1986 when the 83 acres were sold.
The case shows that where an asset is disposed of after the
sale of part of a business, relief will be due only if that
disposal directly relates to that earlier disposal.
Jarmin v Rawlings (67TC130)
Mr Rawlings had for many years owned some 64 acres of farm land,
with a milking parlour and yard, a hay barn, implements, shed and
cattle sheds. By October 1988 he had a dairy herd of 34 animals and
employed a full-time labourer in his dairy farming enterprise,
which constituted the whole of his business.
In October 1988 he sold at auction the milking parlour, yard
and storage barn and a small piece of riverside pasture of no
significant value for the dairy business, the whole amounting to
1.2 acres. Vacant possession was given at completion on 27 January
1989. Between the auction and completion some 14 beasts were sold
as they calved. The remaining 20 beasts were physically transferred
on completion to Mr Rawlings' wife's farm which was adjacent to
his. All but six of the remaining cattle were sold by May 1989.
Five of those six were sold by the end of 1989.
Mr Rawlings ceased dairying at the farm on completion, and
the labourer was made redundant. The 20 or so cattle transferred to
his wife's farm remained his but he did not have any interest in or
financial benefit from their milk after January 1989. Ownership of
the milk quota was also retained by Mr Rawlings, but was informally
transferred to his wife's farm for the rest of the quota year
ending March 1989 and was thereafter leased to third parties. After
January 1989 he continued farming by rearing and finishing store
cattle.
Knox J upheld the Commissioners' decision that Mr Rawlings
was entitled to relief. The sale by auction and completion of that
sale of the milking parlour and yard coupled with the cessation at
completion of all milking operations for Mr Rawlings' benefit
amounted to a disposal by him of his dairy farming business.
In this case the facts pointed to the conclusion that there
was a disposal of a distinct part of the business by way of more
than one transaction.
