Denning: valuation of trade related properties

The name of Denning is not unfamiliar to the Court of Appeal.  This time, however, the Denning concerned was Dr Zyrieda Denning, who appeared as the appellant in [2022] EWCA Civ 909.

Dr Denning had for some years operated care homes as a sole trader.  In 2011 she sold the businesses as going concerns – one to each of two companies she controlled.  She granted leases over the properties at what were agreed to be market rents and purported to assign the goodwill in the two businesses for a total of £1.8m.

HMRC challenged the figures for goodwill and asserted that part of what had been described as consideration for goodwill was, in reality, part of the open market value of the leases. The appeal therefore concerned the open market value of the leasehold interests granted by Dr Denning to the companies.  This appears to have affected both the Stamp Duty Land Tax (‘SDLT’) payable by the companies and the Capital Gains Tax (‘CGT’) payable by Dr Denning.

The Royal Institution of Chartered Surveyors publishes guidance (styled ‘VPGA 4’) for the valuation of ‘trade related property’ – that is, properties which are normally bought and sold on the basis of their trading potential.  The guidance mentions ‘hotels, pubs and bars, restaurants, nightclubs, fuel stations, care homes, casinos, cinemas and theatres, and various other forms of leisure property’.  So this case is potentially of wide importance.

The guidance indicates that, broadly, such property is to be valued by reference to its ‘trading potential’ – that is, by applying a suitable multiple to the profit that a reasonably efficient operator’ would expect to derive from running the business.

The parties agreed that VPGA 4 was the right approach to take: and the parties’ respective experts agreed that the value of the two leasehold interests under VPGA 4 totalled just under £1.3m.

You might have thought that that was an end to it: if the valuation experts agreed, what was there to argue about?  Plenty.

The Upper Tribunal had been persuaded that if the leases provided, as they did, for a market rent to be paid, then it must follow that the capital value of the leasehold interest was zero: and thus that the £1.3m must represent the value of goodwill.

The Court of Appeal disagreed.  It was clear that VPGA 4 was all about valuing property. The fact that trade related properties ‘are valued by reference to trading potential does not mean that two separate assets are being valued.’  The Upper Tribunal had erred in law by ascribing value to ‘transferable goodwill’ separate from the leases.  The aggregate open market value of the leases for both CGT and SDLT purposes was therefore just under £1.3m.

Finally, some further thoughts on the case:

First, if the business had been transferred from a partnership of which Dr Denning was a partner to a company under her control, the special SDLT rules applying to partnerships would have had the result that neither the value nor the consideration given for the leases would have been relevant: there would simply have been no SDLT payable.

Second, if instead of retaining the freeholds and granting leases Dr Denning had transferred all the assets of the businesses in exchange for shares in the transferee companies, no CGT would have been payable.

Third, since it appears that the companies paid £1.8m for property which had a market value of just under £1.3m, it is likely (in the apparent absence of any adjuster clause in the contract) that there will be some tax consequences for Dr Denning as regards the excess.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


By submitting this form, the data provided will be used to perform your request according to our privacy policy.