We have almost reached deadlock with HMRC over a "main residence" claim. They have ignored most of our arguments and are simply repeating that there was not sufficient "permanence" for an election. I don't really want to get into the details as my point relates to penalties. In 25 years I have never know HMRC to look for penalties on a point of interpretation, which they themselves have said is "on balance". My client is tempted to go to the First Tier Tribunal but the tax is not substantial and he sees that it is a subtle point of fact and law. But he refuses to pay a penalty and I am sympathetic. HMRC have been offered, verbally that he would accept their case as long as penalties were not sought. They have refused this offer and said that in order for them to decide if penalties are appropriate they need to know:
"For what reason did you consider that PPR and Lettings relief was due
What advice were you given by your advisor (sic) whilst completing the return
What information/documents did you provide to your advisor relating to the completion of the return
Did you consult any HMRC guidance or helpsheets? If so please confirm what you looked at"
We are a long established firm of Chartered Accountants and I am also a CTA and have never been asked this before. It seems outrageous for HMRC to ask this type of question. Any advice urgently sought.