Oates v Revenue and Customs [2014] UKUT 409 (LC) – valuation of farmhouse for CGT purposes

The UK Lands Tribunal (England & Wales) agreed with the taxpayers that a greater proportion of the sale value should be allocated to the farmhouse rather than the adjoining land.  This was important to determine the amount on which main residence CGT relief was available.   

Interestingly the Tribunal criticised the guidance in the VOA (Valuation Office Agency) manual.

The full case report can be found here.

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‘Private Client Scotland’ a new quarterly bulletin launching in January 2015

If you are interested in subscribing to ‘Private Client Scotland’ please email me at: james@legalknowledgescotland.com

Private Client Scotland will review the latest cases, provide updates on the latest consultations, legislation and official publications and also includes articles, editorials and news items.

A preview bulletin will be published in November.

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Susan Strickland v. Blemain Finance Ltd, 16 October 2014 – heritable creditor’s obligation to obtain the best price on the sale of a repossessed property

Sheriff Court case in which Ms Strickland raised an action under section 25 of the Conveyancing and Feudal Reform (Scotland) Act 1970 seeking damages from Blemain Finance on the basis that it failed to sell a repossessed property for the best price that could reasonably have been obtained.

Background
Blemain sold the property for £150k after it had been on the market for 12 weeks. After hearing evidence from a charted surveyor to the effect that if Blemain had marketed the property for a longer period a price of £175k could have been obtained, the sheriff concluded that a price of £160k could have been obtained over a further 3 months and awarded damages of £10k. The sheriff made no award with regard to interest on the basis that, the sale of the subjects had resulted in a shortfall of just over £10k with respect to Ms Strickland’s debt to Blemain and the outstanding balance of the debt had nonetheless been frozen by Blemain. (The sheriff taking the view that, after the sale, Blemain’s wrongful withholding of £10k –through its failure to obtain the best price- was eliminated by the fact Ms Strickland was not called upon to make interest payments on the outstanding debt.)

Ms Strickland appealed on the basis that:

  1. despite accepting the surveyor’s evidence that a sum greater than £150k ought to have been achievable with more time, when it came to quantification of the increased sum, the sheriff had, for no cogent reason, departed from the surveyor’s evidence; and
  2. having specifically precluded consideration of the shortfall for the purposes of determining the principal sum due to Ms Strickland, the sheriff had then taken the existence of the shortfall into account when considering whether an award of interest should be made.

Decision
The sheriff principal refused the appeal in relation to the damages due in respect of the failure to obtain the best price but allowed the appeal on the question of interest.

Best price
With regard to calculation of the damages in respect of the failure to obtain best price, the sheriff had articulated his reasons for the selection of a lesser figure (the fact that there had been no competing offer at the time the offer of £150k had been made, the effect of the recession and the existence of adverse feedback about the condition of the property).

The sheriff principal also took the view that he should be slow to interfere with the sheriff’s decision unless it could be demonstrated clearly, that he had misunderstood the facts, applied the wrong principles or arrived at a conclusion which was manifestly unjust and was not persuaded that any of these features had been made out. In coming to this decision the Sheriff Principal noted that this was a case in which the parties had agreed to dispense with shorthand notes (and, consequently, no transcript of the evidence was available for the purposes of the appeal) and that the sheriff had the advantage of having seen and heard the witnesses involved and had had the opportunity to consider the evidence in its totality.

Interest
On the other hand, the sheriff principal found Ms Strickland’s arguments regarding interest to be well founded: the shortfall having been specifically left out of account by the sheriff, at the request of parties, it was not then open to him to reintroduce it into the case when it came to the question of interest.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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Smyth v Rafferty & Others [2014] CSOH 150 – Court of Session upholds Will despite challenge

The Court of Session has upheld a Will made shortly before the testatrix’s her death in which she left £3m to re-finance her failing newspaper business.  

The will was challenged by the testatrix’s sister on the grounds of: “(i) lack of testamentary capacity, (ii) undue influence and/or (iii) facility and circumvention.  Put short, she contends that, by the time she came to make the codicil and the new will, Deirdre was so frail mentally, as a result of the pain she was suffering, that she was incapable of understanding what she was doing; or, even if capable of understanding, was in no state to resist the undue influence of those in whom she trusted or the pressure to which she was subjected.”

The full case report can be found here.

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Royal Bank of Scotland Plc v James O’Donnell and Ian McDonald – Guarantee reduced and damages granted as a result of negligent misrepresentations on behalf of bank

The issue
Inner House case in which RBS sought payment of sums due under a personal guarantee granted by Mr O’Donnell and Mr MacDonald the directors of Whinhill Developments Ltd which had been formed to purchase a potential development site at Stone Farm in Greenock. The directors argued that the guarantee had been induced by negligent misrepresentations made on behalf of RBS.

The background
RBS and Whinhill entered a one year loan agreement in September 2007 whereby RBS would provide a loan of £1.65m to fund the purchase. Whinhill bought the site for about £1.5m and planned to obtain planning permission then sell the site to a builder or developer. Whinhill granted a standard security and floating charge in favour of RBS (the site being Whinhill’s only asset).  Whinhill were unable to repay the loan at its expiry in September 2008. The parties then agreed to refinance the loan facility with a new loan of £1.695m to be repaid by March 2011; the Whinhill directors providing a personal guarantee for the company’s liabilities to a maximum aggregate value of £300k.

Whinhill failed to repay the sums due after a default event occurred and RBS sought payment of the sums due under the guarantee in February 2011. Central to the case was the property crash in 2008 and the falling value of the property. The loan was originally advanced in mid-2007 on the strength of a market valuation of £3m. When the facility was refinanced in 2008, property values had “fallen off a cliff” and the credit division of RBS was enforcing a 70% loan to value ratio. However, Whinhill’s relationship director in RBS’s commercial banking division was keen to avoid the crystallisation of, what may have been by then, a worthless security. He received word from Ryden that the property could be valued at £2m which, with a personal guarantee from Whinhill’s directors, would allow the 70% loan to value ratio to be met.

On three separate occasions RBS told the directors that Ryden would or had re-valued the subjects at £2m. The directors had understood the revaluation could be relied on for lending and guarantee purposes and, in the Outer House, Lord Malcolm took the view that it was reasonable for them to do so. Shortly after the first occasion (but before the second), RBS’s relationship director received the updated valuation from Ryden by letter. However, the letter made it clear that the report was not suitable, nor to be relied on by the bank, for lending purposes (it was also based on an assumption of increased development density which had not been discussed with the Whinhill directors). The directors were not informed of this and there was no evidence that the report had been received by the directors who then granted the personal guarantee in favour of the bank.

The decision
In the Outer House Lord Malcolm found that the RBS statements were material factors in the directors’ decision to grant the guarantee and that the guarantee would not have been granted if they had been aware of the true position. As a result, a reduction of the guarantee was granted.

Whether the Whinhill directors were also entitled to damages for their losses depended on whether the misrepresentations amounted to a breach of a duty of care owed to them. Lord Malcolm found that, in using the assurance given by Ryden before receipt of the report to help persuade the Whinhill directors to agree to the guarantee, the relationship director had to be taken as having assumed responsibility for its accuracy. He then came under an obligation of enquiry or disclosure if he subsequently received material which cast doubt on the information given to the directors. And thereafter, he had a duty not to repeat the misrepresentation. The relationship director had breached that duty and the Whinhill directors were entitled to damages for loss sustained as a consequence.

The Inner House were in agreement with Lord Malcom’s findings and refused an appeal.

The full judgement is available here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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‘Private Client Scotland’ a new quarterly bulletin launching in January 2015

If you are interested in subscribing to ‘Private Client Scotland’ please email me at: james@legalknowledgescotland.com

Private Client Scotland will review the latest cases, provide updates on the latest consultations, legislation and official publications and include articles, editorials and news items.

A preview bulletin will be published in November.

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LBTT rates and bands

John Swinney has announced the proposed rates and bands for the Land and Buildings Transaction Tax (LBTT) as part of the Draft Budget.

LBTT will replace Stamp Duty Land Tax (SDLT) in Scotland on 1 April 2015.  The new tax will have a progressive structure to bands and rates (i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT). This approach is intended to remove the distortions in house prices which may result from the bunching of sales around the thresholds that can occur with SDLT. 

Residential Purchases
The rates and bands which apply to the purchase of residential properties are as follows: 

Purchase price LBTT rate
Up to £135,000     0%
Above £135,000 to £250,000    2%
Above £250,000 to £1,000,000    10%
Above £1,000,000    12%

 

Non-Residential Purchases
The rates and bands which apply to the purchase of non-residential properties are as follows:

Purchase price   LBTT rate
Up to £150,000    0%
Above £150,000 to £350,000    3%
Above £350,000    4.5%

.

Non-Residential Leases
The rates and bands which apply to non-residential leases are as follows (as with SDLT, the rates are applied to the Net Present Value (or NPV) of the rent payable under the lease):

NPV of rent payable   Rate of tax to apply
Up to £150,000   0%
Over £150,000   1%

.

The following tax rates and bands will also be applied to any premium payable under the lease:

Premium   Rate of tax to apply
Up to £150,000    0%
Above £150,000 to £350,000    3%
Above £350,000    4.5%

.

Further information and tax calculators are available from the Scottish Government here.
A summary of the Land and Buildings Transaction Tax (Scotland) Act 2013 is available here.

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Land Registration etc. (Scotland) Act 2012 – Style documents

 2012 Act compliant offers are now available to subscribers and from our styles page here

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Update on HMRC’s changes to its ‘bereavement service’

This includes:

“On 13 October, HMRC will remove form R27 (‘Reclaiming tax or paying tax when someone dies’):

  • for PAYE customers – with an automated process that is simple for customers and more efficient for HMRC
  • for Self Assessment customers – with a tailored service, which includes letters that match the individual’s circumstances”

More on this can be found here.

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‘Private Client Scotland’ a new quarterly bulletin launching in January 2015

If you are interested in subscribing to ‘Private Client Scotland’ please email me at: james@legalknowledgescotland.com

Private Client Scotland will review the latest cases, provide updates on the latest consultations, legislation and official publications and include articles, editorials and news items.

A preview bulletin will be published in late October.

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