Marriage breakdown ruled a reasonable excuse
A taxpayer has won an appeal against HMRC concerning £10,000 late tax payment penalties, after a tribunal ruled his marriage breakdown was a reasonable excuse for tardiness.
In the case Timothy Cooke v HMRC [TC03633], Cooke, a businessman from Telford, West Midlands, was issued two late penalties totalling around £10,000 for his self-assessment tax return for the year ended 5 April 2012.
Cooke owed capital gains tax (CGT) of about £100,000, due by 31 January, after he made £380,000 by selling shares in a company he used to work for. But he didn't pay the tax until 24 October 2013.
Cooke told the tribunal that he had been in financial difficulties and used £70,000 from the share sale to pay off his Individual Voluntary Arrangement. He also used £30,000 from the share sale to pay a loan.
At the time, the taxpayer was living with his wife and children in a property that was in negative equity.
Cooke and his wife bought a second property, using money from his share sale and planned to raise £100,000 through the property’s mortgage to pay his CGT bill.
But in March 2012 Mrs Cooke began divorce proceedings and initially refused Cooke’s requests to sell or mortgage the new property so he could pay the CGT.
The house went on the market in August 2012 but took over a year to sell. Cooke told the tribunal that he had phoned HMRC a number of times in January 2013 to tell it he would not be able to pay the CGT in time
He said that during these calls HMRC told him not to worry, that it would he HMRC would allow time for payment and that it wouldn’t charge penalties.
When the property was sold on 24 October 2013, Cooke paid the CGT owed on the same day from the proceeds.
By this time, HMRC had issued two late-payment penalties. The Revenue's counter-argument was that Cooke did not have a reasonable excuse for failing to pay his tax on time and there was no time to pay agreement.
It said there was no evidence that officers had told Cooke he would not be charged penalties for late payment.
It also said Cooke could have carried on living at his original property and paid his tax from money he had made on the sale of his shares.
HMRC said that while it sympathised with changes in Cooke’s personal circumstances during the 2011-12 tax year, there were no events that were outside his control which prevented him from settling his tax liability.
The tribunal ruled in favour of Cooke, saying that at the time he bought a second property, he could not have known that his marriage was about to fail.
The tribunal said he was entitled to manage his financial affairs as he saw fit, and the proposal to raise a mortgage on the second property to pay CGT would not normally have presented any difficulty and would have happened had the marriage not broken down.
It added that Cooke’s marriage breakdown was “clearly an unforeseen event which was entirely beyond his control" and something he “could not have reasonably expected events to conspire to prevent him from discharging his tax liability on time.” The taxpayer's penalties were discharged.