Zyrieda Denning & Ors v The Commissioners for HMRC
Decision date: 8 April 2021
Neutral citation: [2021] UKUT 76 (LC)
Overall AI summary confidence: medium
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: medium
This appeal concerns whether a capitalised figure derived by the profits method (the FMOP net of rent, described as "trading potential") forms part of the market value of two leasehold interests in care homes or instead represents business goodwill separate from the leaseholds. Experts agreed the numerical FMOP/FM T, year's purchase and resultant leasehold values but disagreed on legal characterisation: one expert treated the premium as property-related trading potential included in the leasehold value; the other treated it as business goodwill. The Tribunal has the agreed valuations on record but must resolve whether those amounts legally constitute property value or goodwill for the tax appeals.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: medium
From the judgment notes, where a transfer of a going concern (TRP) is valued by the profits method the concept of "trading potential" in VPGA 4 is linked to the property and may be regarded as reflecting factors inherent in the TRP that form part of the market value of the land or leasehold interest; valuation by reference to FMT/FMOP should use a reasonably efficient operator and excludes personal goodwill. This supports treating transferable trading potential as part of property value rather than intangible business goodwill insofar as it derives from factors inherent in the property.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The notes record that VPGA 4, though published after the valuation date, may be treated as best practice at the hearing date and that its definitions emphasise a property-focused approach to TRP valuation. The judgment also cautions about apportioning transaction prices because deals may reflect stock, intangible assets and liabilities beyond land and trade inventory.