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History on a piece of paper | AccountingWEB | FTT pieces the past together in CGT case
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FTT pieces the past together in CGT case

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Alex Spencer looks at how conflicting accounts and allegations of fraud left the first tier tribunal piecing together the past in a capital gains tax case.

5th Jul 2024
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What should have otherwise have been a simple appeal about a taxpayer’s purported entitlement to relief for overpayment of capital gains tax (CGT) on the sale of their flat turned into an exercise in detective work for the first tier tribunal (FTT) in Rooke vs HMRC [2024] UKFTT 00403 (TC).

The facts as (eventually) found by the FTT were these.

In 2019, the taxpayer paid £90,000 for an interest in their brother’s flat, which was valued at £255,000. Then, in June 2003, the taxpayer acquired a further share of the flat, agreed to be 14.71%, in return for cash of £19,200 and the taxpayer assuming mortgage liabilities worth £25,655.

The taxpayer lived in the flat between October 2013 and February 2015 before it was sold in June of the same year for £914,685 (after deducting the costs of sale).

Conflicting accounts

On the face of it, that all seems pretty straightforward. However, the taxpayer made various assertions in the hearing which appear to have complicated the FTT’s attempts to piece together the history.

The taxpayer claimed alternatively that they had acquired an interest in an entirely different property which their brother had purchased using the £90,000 they had paid to him; or that their £90,000 had purchased an initial share in the flat but that the initial share (and therefore their share of the proceeds) was significantly greater than 50%.

The taxpayer also made various allegations of systemic conspiracy and fraud perpetrated against them by banks, estate agents, lawyers and HMRC. The fraud allegedly involved the capital gains tax legislation being used against them.

FTT called these allegations ‘extensive’ and ‘inconsistent’, and felt the need to remind the taxpayer that its remit was limited to whether they had overpaid CGT.

Sum trouble with the figures

The FTT’s job was further complicated by what appears to be the protracted correspondence between HMRC and the taxpayer pre-dating the appeal.

In October 2016, the taxpayer filed a return for their 2015/16 tax return on the basis that they had a 50% interest in the disposal proceeds and that after deduction of allowable costs, principal private residence relief and letting relief, they had realised a gain of £147,205, subject to capital gains tax of £38,039.18.

The taxpayer subsequently amended the return (twice) after spotting a clerical error inflating the allowable costs claimed on the return. The effect of those amendments was to increase the amount of the CGT due to £58,325.44, which the taxpayer duly paid.

Then, in March 2020, the taxpayer wrote back to HMRC to claim overpayment relief of £18,881, apparently on the basis that they had always held a greater share of the property than 50% (it isn’t entirely clear from the judgement why the taxpayer thought this should reduce their liability to CGT).

Things didn’t end there: HMRC subsequently opened an enquiry into the taxpayer’s 2015/16 tax return and eventually concluded that overpayment relief of only £6,001 was due. That amount was paid in April 2021. But that was still not the end of the matter.

HMRC then formed the view that the taxpayer had overclaimed principal private residence relief with the consequence that the taxpayer had a liability of £6,308.54. Roughly four years after submitting the tax return, the taxpayer appealed to the FTT.

Piecing it together

Once it had pieced together the background, the FTT had little difficulty in resolving the appeal in favour of HMRC.

It was clear to the FTT that the taxpayer had acquired a 35.83% share in their brother’s flat in October 1999 and a further 14.17% in June 2021. The taxpayer had a total share in the flat of 50% and was entitled to 50% of the sale proceeds, despite their assertions to the contrary.

The FTT disagreed, however, with the amounts the taxpayer had claimed for letting and principal private residence relief. The taxpayer had claimed relief on the basis that the legislation deemed them to have lived in the flat for 31 months. The FTT found the correct figure to be 21 months.

It reduced the PPR claimed on the return and the corresponding letting relief (at the time, letting relief was capped at £40,000 or the amount of PPR claimed).

The effect of the FTT’s adjustments was that the CGT due from the taxpayer was £59,046.30. The taxpayer had already paid £58,738.86 in 2017 but had received a repayment of £6,001 in April 2021.

The FTT concluded that the taxpayer had an outstanding liability of £6,308.44 and dismissed the appeal.

Replies (5)

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By FactChecker
05th Jul 2024 19:27

It's not often that I can sympathise with HMRC (or even the individual officers who had to deal with the apparently random and inconsistent assertions sent to them).
But I do know what it feels like - based on a few experiences on Any Answers.
Fortunately infrequent, but a few of those combine exactly such allegations of systemic conspiracy and fraud (not just by "banks, estate agents, lawyers and HMRC") ... with an inability to retain a cohesive story that doesn't flicker in and out of focus whilst failing to adhere to believable 'facts'.

I particularly enjoyed:
"the taxpayer wrote back to HMRC to claim overpayment relief of £18,881, apparently on the basis that they had always held a greater share of the property than 50% (it isn’t entirely clear from the judgement why the taxpayer thought this should reduce their liability to CGT)"!

Thanks (2)
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By petestar1969
08th Jul 2024 09:37

Is it just me, or is there something wrong with the timeline? 2019 at the start then 2003, then 2013.....

Thanks (2)
Replying to petestar1969:
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By RetiredTax
08th Jul 2024 10:07

My (confused?) thoughts also.

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Replying to RetiredTax:
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By Claire@TaxWatch
08th Jul 2024 10:26

Yep, the first date is 1999, not 2019, the rest of the timeline is accurate

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Replying to Claire@TaxWatch:
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By aland
08th Jul 2024 11:33

I think there must be another error "It was clear to the FTT that the taxpayer had acquired a 35.83% share in their brother’s flat in October 1999 and a further 14.17% in June 2021.
Here it would appear that the first date is correct, but the second should be 2003.
Perhaps the OP should correct the original for the benefit of future readers.

Thanks (1)