We then moved on to consider the question of disposal. In this context we were referred by Mr Singh to the case of JFB and JR Sharples v HMRC [2008] UKVAT V20775 . The Tribunal in that case (Charles Hellier and Sheila Wong Chong) considered in some detail the meaning of the word ‘disposal’ in Note (2)(c) to Group 5. ‘Disposal’ could of course encompass a wide range of alienation actions, ranging from the grant of a licence to occupy to a full sale of the freehold, including the granting of a long lease. The tribunal in Sharples considered that the proper meaning of ‘disposal’ in this context was coloured by its proximity to the word ‘use’. They therefore decided that in this context ‘disposal’ could mean something as limited as simply the disposal of occupancy or the right to use the property, and not necessarily the disposal of the full freehold. This seems to us to be a very low threshold.
However, we are required in the present case to ask ourselves whether or not separate ‘disposal’ of the dwelling is prohibited for the purposes of Note (2)(c) by the terms of the planning permission, which uses the word ‘alienate’ in the relevant condition, ie condition 2 in the s106 Deed. This states that Mr Stoneham is required:
“To retain the whole of the Land together as one parcel and in one ownership and not to alienate any part of the land or any building erected thereon without the prior consent in writing of the Council PROVIDED ALWAYS that this Deed shall not operate to prevent the disposal alienation or leasing of the whole of the land (including any building erected thereon together as one parcel).”
Given the subsequent use in this condition of the words “disposal alienation or leasing” we believe that these words are probably intended to mean different things and that alienation is something less than a full disposal of the legal interest. Therefore, if it does indeed mean something less than a full disposal, the condition contained in the s106 Deed is more restrictive than if it referred to a full disposal of the freehold or, for example, the granting of a long lease.
We then move on to the meaning of ‘prohibited’. We were referred by Mr Zwart to the cases of EC Commission v United Kingdom (Case 416/85) [1988] STC 456 and EC Commission v Finland (Case C-C169/00) [2004] STC 1232 . In particular Mr Zwart referred us to the words from the Finland case:
“the terms used to specify the exemptions which constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person must be interpreted strictly .” (Counsel’s emphasis)
We took this to mean that we should seek to interpret the precise words of the statute and the planning permission and should not insert any assumed words which might qualify the meaning of those words in any way. We therefore sought to interpret the meaning of ‘prohibited’ in its normal sense.
It was common ground between the parties that the word ‘prohibited’ is a very high threshold and means a strict prohibition, ie that something is totally forbidden.
It is clear that the first part of condition 2 of the s106 Deed is a prohibition on the separate alienation of any part of the land and buildings in that the owner is required:
“to retain the whole of the Land together as one parcel and in one ownership and not to alienate any part of the land or any building erected thereon …”
The key question therefore is whether or not the fact that the land and buildings can be sold separately with the written consent of the Council means that this is an absolute prohibition on the separate sale of the building or merely a disposal which is permitted on the fulfilment of certain conditions.
In his evidence Mr Stoneham stated that his solicitor had advised him that he could read into those words something of the nature of “such consent not to be unreasonable withheld”. Given that we are required, in accordance with the Finland case, to interpret the words strictly, we do not believe that we can read such words into condition 2. We must therefore interpret the words as they stand.
However, in our view, if the Council had intended that this should be an absolute prohibition on the separate disposal of the dwelling then there would have been no point in including the words “without the prior consent in writing of the Council” in the agreement. Even without those words, it would always have been open to Mr Stoneham to have approached the Council at a later date to vary the terms of the s106 Deed to permit a separate disposal. The fact that the Council did include those specific words in the agreement suggests strongly to us that they must have contemplated the possibility of a separate sale from the outset.
If these words had been omitted from the s106 Deed that might have meant that there was an absolute prohibition on the separate sale of any part of the land or buildings. However the fact that the words “without the prior consent in writing of the Council” were written into the s106 Deed persuades us that this condition should not be regarded as an absolute prohibition and that it was quite possible that the Council would give such consent at a later date.
We therefore decided that the planning documents did not contain a prohibition on the separate alienation or sale of the dwelling separate from the land and equestrian buildings.
Decision
Having considered the planning documents as set out above we therefore decided that there was nothing in the planning permission or the related documents which constituted a prohibition on the separate use or disposal of the dwelling for the purposes of Note (2)(c) to Group 5 of Schedule 8 VATA.
We therefore decided that the company’s appeal should be ALLOWED and that the VAT assessment for £7,500 issued on 18 January 2013 should be quashed.
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.