SE08001 Emoluments: transfer of real property to employees and directors – Langham v Veltema
Section 19(1)1 ICTA 1988
Where land is transferred by an employer to an employee at less than its market value, there is usually a chargeable emolument under Section 19(1)1 ICTA 1988 equal to its open market value less what the employee pays for it ( SE00540 onwards). 'Land' includes a house and most other forms of residential property, for example, a flat.
Referral to District Valuer – important
In all cases where land is transferred to a director or
employee, an Inspector
must consider whether the transfer is at full
value and, if not, whether the undervalue is a profit from the
directorship or employment. Where the property is in the United
Kingdom the Valuation Office must be consulted (not on form CG20)
in all cases where the transfer appears to be at less than full
market value.
Failure to consult the District Valuer as soon as the
information on the transfer is available may result in the expiry
of time limits before tax can be assessed under Schedule E.
In Langham v Veltema (SpC3717) an SA Return submitted by a
director showed a house transferrred from his employer for
£100,000. There was nothing on the return to indicate the
basis for this valuation. The Revenue should have consulted the
District Valuer, but it did not do so. Subsequently the company
accounts were submitted showing the £100,000 value on transfer
of the property and the CT office requested a valuation from the
District Valuer. The District Valuer agreed with the taxpayer a
valuation of £145,000.
By the date of agreement of the valuation the time limit had
expired for the Inland Revenue to amend the taxpayer’s self
assessment to include the full transfer value of £145,000.
Instead a further assessment was raised for £45,000 on the
basis that the Inland Revenue could not have been expected from the
information on the return to know the transfer took place at
undervalue. The taxpayer appealed on the basis that the time limit
for the Revenue to amend his self assessment had expired and there
were no grounds for the issue of a “discovery”
assessment since the transfer had been disclosed in the SA return.
The Court of Appeal dismissed the appeal, as the return had
not alerted the Revenue to the possible insufficiency of the self
assessment, so the Inspector could not have been reasonably
expected to be aware of it, without consulting the DV. Hence when
the true value of the house came to light later, the Revenue was
justified in issuing a “discovery” assessment.
Nonetheless, if the DV had been consulted at the proper time
it would have been apparent, before expiry of the relevant time
limits for amending the self assessment, that the transfer took
place at undervalue. Consequently this case should serve as a
reminder that when an asset is transferred between an employer and
an employee, the DV must be consulted immediately for an opinion of
the valuation provided.
See:
- SE08002 about consulting the District Valuer.
- SE08003 for what to do after receiving the District Valuer's report.
- SE08004 if the property is outside the UK.
- SE08005 about alternative avenues of charge to tax if liability under Section 19(1)1 ICTA 1988 is not established.
- SE08006 about Capital Gains Tax liability and Schedule D Case 1 deduction for the employer.
- SE08007 about options to transfer property.
- SE08008 where property is transferred by a director or employee to their employer at more than market value.
