What was the dispute?

Nellsar Ltd, a care home operator, bought five homes between 2004 and 2007.  Each purchase included property, inventory, fixtures and fittings, and goodwill – which is tax-deductible under UK rules.

The disagreement centred on how the properties were valued.  Nellsar used depreciated replacement cost (DRC), claiming there was no real market for care home buildings outside operational businesses.  HMRC disagreed, insisting there were enough comparable sales to justify using market value.  They argued that using DRC made the accounts non-GAAP compliant.

Separately, HMRC challenged how Nellsar apportioned the purchase price for Stamp Duty Land Tax (SDLT).

Why did it matter?

Goodwill is the balancing figure – the amount left after deducting the value of the assets from the total paid.  The lower the property value, the higher the goodwill – and the larger the potential tax deduction.

HMRC revised Nellsar’s returns, reduced the goodwill claimed, and imposed additional corporation tax.  Nellsar appealed, but the tribunals sided with HMRC.

What did the tribunals say?

The First-tier Tribunal (FTT) ruled that:

• Market value was the correct basis under FRS 7 for valuing the properties.
• There was sufficient evidence of comparable market sales.
• DRC was inappropriate where reliable market values existed.
• Nellsar’s SDLT apportionment was rejected in favour of HMRC’s method using independent valuations.

The Upper Tribunal (UT) upheld the FTT’s findings:

• The FTT had fairly assessed expert evidence.
• Market valuation was appropriate under the accounting standards.
• HMRC’s 2013 SDLT Practice Note was the correct basis for apportionment.

Why this matters:

This isn’t just a care sector issue – it applies to any business that is thinking of acquiring premises as part of a going concern – an ongoing trading business.

• Market value is the default valuation where comparable sales exist
• HMRC guidance – such as the SDLT Practice Note previously referenced – will carry weight in assessing valuation
• Negotiated price splits between types of assets won’t protect you unless they contain valuation evidence

Many assume a commercially negotiated price split will hold up under scrutiny.  This case proves that unless you’ve backed it up with credible, market-based valuation evidence, that’s a risk in transacting.

Where trading businesses and property are tightly linked – like care homes – separating the two in a meaningful way is essential.  DRC might be allowed, but only if there’s genuinely no market evidence – and that’s now a very high bar.

How can Botham Accounting help?

We support care operators and regulated businesses with:

• GAAP-compliant valuations in business acquisitions.
• Tax relief and SDLT apportionment advice aligned to HMRC guidance.
• Supporting evidence and documentation to protect against potential challenges.

If you are going through a transactions or want to find out more, contact Tom Gregory at [email protected] to discuss your acquisition or tax position. 

Alternatively, reach out to another member of our expert team by getting in touch here.