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Tax tribunal clarifies legal ownership issues

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19th Oct 2011
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Individuals making a Capital Gains Tax (CGT) disposal should bear in mind a recent tribunal clarifying beneficial and legal ownership issues, according to Essex-based accountant Rickard Keen.

In Lawson v Revenue and Customs [TC01206] the taxpayer successfully appealed against a decision by HMRC that the taxpayer was the sole legal and beneficial owner of a property. HMRC said that the whole of the capital gains tax should be charged to Mrs Lawson. 

Mrs Lawson successfully argued that her husband was entitled to a half share of the capital gain arising as he was also a beneficial owner.

The first tier tribunal ruled that the true purpose of purchasing the property was to provide stable and secure accommodation for the taxpayer’s daughter, as opposed to being held for investment purposes.

The tribunal decided that the taxpayer and her husband shared all assets between them and held an equal and beneficial interest in all properties owned. This was on the basis of their relationship, irrespective of who held the legal title.

“We had no doubt that the Appellant and her husband shared all assets between them and held an equal beneficial interest in all properties owned,” the tribunal judge ruled. “We found as a fact that this went beyond an ‘agreement’ or ‘understanding’; it was the basis of the relationship which had extended over a significant number of years, irrespective as to who held the legal title.”

Keith Bell, from Rickard Keen, said that since the ruling HMRC takes into account a number of factors when assessing whether a beneficial interest is held by a third party. 

These factors are: legal title, occupation of the property, receipt of any rental income, provision of funds to purchase; and receipt of sale proceeds on disposal.

HMRC guidance says that no single factor is decisive and each case must be considered on its own merit, Bell said.

HMRC will also take into account whether a Form 17 – a declaration of beneficial interests in joint property and income - has been submitted.

In the absence of factual evidence to determine beneficial ownership (or Form 17), on the disposal of an asset HMRC will seek to tax the spouse (or civil partner) with legal title, or if they have joint legal title, on a fifty-fifty basis.

“Keeping good records and evidence will therefore be important, particularly in cases where beneficial ownership is unclear,” Bell said.

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By ThornyIssues
20th Oct 2011 16:17

The tribunal decided that the taxpayer and her husband shared all assets between them and held an equal and beneficial interest in all properties owned. This was on the basis of their relationship, irrespective of who held the legal title.

This is so wrong and another example of when tax law ignores other law (like IR35 uses employment law to make tax decisions).

This is tantamount to my wife being liable to half my speeding fine(s) because she shares the asset of the family car!

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By KH
24th Oct 2011 15:33

Not quite the same....

"This is tantamount to my wife being liable to half my speeding fine(s) because she shares the asset of the family car!"

Not quite, it is more like your wife being 50% liable for road tax if the car is off road without a SORN document ... she has beneficial ownership of half the car, not half your driving skills (although, if she were the typical back-seat driver that my wife is.....)

 

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By The Black Knight
25th Oct 2011 08:59

First Tier

It is only a first tier tribunal....... still a bit ridiculous and therefore fits perfectly in the tax legal system....

"The answer sir is that no one knows the answer, I could do a lot of research into your situation charge you a large fee to give you a better I don't know"

or you could just make it so with the usual legal ownership forms......but we all know the vast majority will not do this as there is now (if it gets to 2nd tier) a legal get out....

 

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Nichola Ross Martin
By Nichola Ross Martin
25th Oct 2011 11:35

No this is not correct

The article misses a pretty fundamental detail out of the analysis.

Significantly the husband was able to show that he had cashed in an endowment policy in order to fund the purchase of the property.

So there was a lot more to this then the mere fact that they had been married for years.

A declaration of trust would of course have solved the problem.

Virtual tax support for accountants: www.rossmartin.co.uk

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By The Black Knight
25th Oct 2011 11:49

Would/could this cut both ways ?

If I have drawn money out of the bank to buy my wife a dress, meaning she has funds left over to invest in shares are those shares now mine for tax purposes......silly example I know but I hope you get the gist.

Why didn't the husband appear on the deeds ?

and why would this be different to the husband giving his wife some cash (wherever it was from) A gift.....and her purchasing any item they both get enjoyment from.

Is this the beginning of the end of independent taxation ??

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