TAXATION

The taxpayers, who owned farmland with development potential, sought assistance from a solicitor specialising in tax avoidance and who controlled several companies for that purpose...The taxpayers, who owned farmland with development potential, sought assistance from a solicitor specialising in tax avoidance and who controlled several companies for that purpose.

In 1984 an agreement was reached between the taxpayers, the companies and developers for the disposal of the land by the grant of a lease, payment of rent and provisions for an annuity.

That agreement was carried into completion by a deed dated June 1984.

The taxpayers were assessed to tax on the basis that the arrangements were sham and of no effect.

Without referring to the 1984 deed the special commissioners dismissed the taxpayers appeal holding that the 1984 agreement was a sham.

The judge reversed the commissioners decision.

The Crown appealed.Philip Vallance QC and Karen Steyn (instructed by Solicitor of Inland Revenue) for the Crown.

Leolin Price QC, Penelope Reed and John Smart (instructed by Gregory Rowcliffe & Milners) for the taxpayers.Held, allowing the appeal, that the commissioners were entitled to draw inferences leading to their conclusion that the agreement setting out artificial arrangements to avoid tax was a sham because some of its terms were not intended to create the legal rights which they gave the appearance of creating; that, having done so, the commissioners should then have considered the operative parts of the deed which carried the agreement into effect; but that had they done so the only conclusion open to them would have been the finding that the deed itself constituted a sham.