Kamran purchased a property for his sister, who claimed housing benefit, but he didn’t declare any rent received. So who was the tenant and who was the landlord?
Mohammed Kamran (TC07097) told HMRC that he purchased 11 Otley Street, Halifax in September 2010 “for” his sister Shamim Akhtar.
Akhtar could not obtain a mortgage in 2010, so Kamran obtained one in his own name for £40,000 from Halifax. The balance of the purchase price came from Akhtar, other siblings and the extended family.
In 2015, Kamran sold the property to Akhtar. Kamran’s position was that it had never been his house, it had always been hers. He backed up this claim with copies of solicitors and bank letters. However, HMRC claimed to have received information that Kamran had been receiving rents from the property.
Calderdale Metropolitan Borough Council (CMB) supplied the following information to HMRC:
Description: Lettings payments to landlords
Name: Mohammed Kamran
Let address: 11 Otley St Halifax
Housing benefit: 2010-11 - £3,142.86
2011-12 - £5,385.12
2012-13 - £4,773.60
The housing benefit was claimed by Akhtar at a rate of £110 per week, but the claim ceased in 2013. CMB also sent HMRC a tenancy agreement, signed by Kamran!
In July 2016, HMRC issued assessments under TMA 1970 s29 for 2010/11 to 2012/13, roughly based on the above benefit figures. In October 2017, HMRC issued additional assessments for 2013/14 and 2014/15 on the presumption that Kamran was still receiving rent from Akhtar at the rate of £110 a week.
Kamran now discovered from the family that Akhtar had claimed housing benefit. He asked how and to whom CMB had paid £110 a week since he certainly had not received it. Nor had he ever received any correspondence relating to housing benefit. Finally, he asked for a copy of the tenancy agreement, denying any knowledge of such a document.
HMRC’s response was that “as the appellant was the sole legal owner he was liable to tax on the income and in any case, they had seen no evidence to suggest that a person other than yourself was the beneficial owner”. In a pithy footnote, the judge points out that the latter statement was “blatantly untrue”.
On being shown the tenancy agreement, Kamran admitted he had signed the document but had not known what it was – he had been put under considerable moral pressure and stress by his family to enable his sister to buy a house.
When Akhtar claimed housing benefit in September 2010, she declared she was a tenant of the property and requested the benefit be paid to her own bank account. In a second claim dated March 2013, she ticked the box stating that she owned the property. All of this clearly contradicted the suggestion that any housing benefit had been paid to Kamran.
The judge had severe reservations about the quality of the information given to HMRC by CMB:
- How could the council call the payments “letting payments to landlords” when they knew they were paid to the person who said they were a tenant and who had produced a tenancy agreement in support of their claim for benefit?
- The numbers did not, on any analysis, tally with a housing benefit payment of £110 a week.
“The information HMRC received was wrong. Not just slightly wrong but wholly misguided and misleading,” the judge stated.
Nonetheless, it was not unreasonable for HMRC to have issued assessments to Kamran for 2010/11 to 2012/13. If housing benefit due to a tenant is instead paid directly to the landlord, it is reasonable to assume it is covering, or at least contributing to, the rent. Although the benefit itself is tax-free in the hands of the claimant, it would become taxable as rent in the hands of the landlord.
However, it was unreasonable to have assessed Kamran for rent received in 2013/14 and 2014/15. HMRC had used the “presumption of continuity”, which assumes that a source of income will, absent evidence to the contrary, recur.
That presumption cannot be justified in the case of a social security benefit claim which may be denied or withdrawn or simply not renewed. It also ignored the evidence: CMB had not provided figures for the later years and had explicitly stated that no benefit was claimed after 2013. For these two years, there was no valid discovery.
Given that the assessments had, for the earlier years at least, been validly made, the judge chose to focus on the question of whether the tenancy agreement might have been a sham. In this case, it was in HMRC’s interest that the tenancy agreement should not be a sham since, if there was no tenancy, there was no rent.
The principles given by earlier cases show the essence of a sham is that:
“the parties to a transaction intend to create one set of rights and obligations but do acts or enter into documents which they intend should give third parties… the appearance of creating different rights.”
The judge decided that Kamran had never intended a landlord-tenant situation: in his mind, the house always belonged to Akhtar. The fact that in 2013 she had stated on the housing benefit claim that she owned the house strongly supported this.
“It is our clear finding that the agreement was entered into by Miss Akhtar with the support of her wider family to deceive [CMB] Council into granting Miss Akhtar housing benefit, something she would not be able to obtain without a tenancy agreement. We will ensure that a copy of this decision is sent to the council.”
As the tenancy agreement was a sham, Kamran was not entitled to rent, and so cannot be assessed for rent. The assessments were all cancelled.
This case was not, in fact, one of a landlord failing to notify chargeability for his rents, but rather of a fraudulent claim to housing benefit.
HMRC’s own “data guardians” almost torpedoed the department’s case by refusing to produce the tenancy agreement which it had received from CMB on entirely spurious data protection grounds.
Happily, the presenting officer managed to change their minds on the eve of the hearing. Had he failed in this, the appeals would have been allowed without examination of the evidence, and the benefit fraud would never have been uncovered.