Upper tribunal discovered numerous FTT misstepsby
Mark Campbell’s appeal regarding the purchase and sale of four residential properties was heard by the upper tribunal. They found numerous errors of law in the first tier tribunal’s decision.
In the original decision, the first tier tribunal (FTT) [TC08398] considered whether Campbell was assessable to income tax (or in the alternative capital gains tax) on the purchase and sale of four residential properties, which he bought, modified, and held for between nine and 28 months before selling at a profit.
While the FTT ultimately found that Campbell was not undertaking a trade as a professional property developer (and so was chargeable to CGT), the tribunal dismissed Campbell’s argument that he was entitled to private residence relief (PRR) as he was living in job-related accommodation (JRA) to provide medical care for his sick father.
Campbell appealed to the upper tribunal (UT) [UT/2022/000108] on the basis that the FTT had erred in law in:
- Deciding that the exemption in section 222(8) TCGA 1992 was not available.
- Concluding that the assessments were validly made (this ground of appeal did not succeed).
- Concluding that in relation to the penalties Campbell’s failure to notify was deliberate.
- Failing to consider the quantum of the penalties and not giving full mitigation.
HMRC cross-appealed on the ground that the FTT had erred in law in concluding that Campbell was not trading.
No trade confirmed
The UT started by considering HMRC’s cross-appeal. The UT acknowledged that the FTT may well have approached the trading question differently from how the UT or a differently constituted FTT might have approached it.
The test was whether the FTT had made an error of principle by concluding that Campbell not trading was the only reasonable judgement that a tribunal could reach. Since the FTT’s decision involved no error of principle and was within the range of decisions open to the FTT, the cross-appeal was dismissed.
Missteps in FTT decision
Where HMRC’s cross-appeal failed, Campbell found more success.
Namely, the UT found that the FTT had erred in law when deciding that the exemption for JRA under section 222(8) TCGA 1992 was not available.
The UT pointed to several failings by the FTT when considering the JRA issue. For example, the UT found it “inexplicable” that the FTT made no findings on whether Campbell had an enforceable employment contract for caring responsibilities (despite it being apparently common ground between Campbell and HMRC that Campbell did have such a contract), and the UT similarly found it “striking” that the FTT did not consider the meaning of the words “by reason of employment” as a matter of law.
Further, the FTT failed to apply the correct test. Not only did the FTT not consider the meaning of the words “by reason of employment” (the UT pointed to many authorities, including Wicks v Firth 56 TC 318), but the FTT considered the test to be whether Chapman needed to reside in the family home to perform his employment duties. The UT noted that it was a materially different, and stricter test, and an additional requirement imposed by the definition in section 222(8A).
No consideration of “deliberate”
Campbell was also successful in his appeal grounds relating to the penalties.
HMRC had assessed Campbell with penalties totalling over £40,000, with HMRC concluding that his failure to notify had been deliberate but not concealed. Those penalties were upheld by the FTT.
The UT described it as “unfortunate” that the FTT did not refer to the legislation or any case law on the meaning of deliberate, particularly given this categorisation of Campbell’s failure to notify was an important issue when considering the penalty appeal.
Referring to the Supreme Court decision in HMRC v Tooth  UKSC 17 and other authorities, the UT commented that, broadly, in respect of a failure to notify liability to tax, HMRC needed to establish that Campbell was aware of the obligation to notify and chose not to comply, even though he could have done so.
However, the FTT’s reasons for its decision were insufficient to justify a finding of deliberate behaviour. While some of the reasons may have been relevant to a consideration of whether Campbell acted carelessly by not notifying a liability to tax, that was not the question before the FTT.
Similarly, the UT found that the FTT had erred in not considering or giving any reasons for upholding the level of mitigation of the penalties.
In respect of three grounds of appeal, the UT found that the FTT had erred in law and that the errors were material.
Accordingly, the UT set aside the FTT’s decision on those grounds of appeal and remitted it back to the FTT for reconsideration (by way of oral hearing), by a differently constituted FTT.
In respect of the JRA issue, the UT directed the FTT to consider whether Campbell was exempt from CGT on any or all of the relevant disposals under section 222(8) TCGA, with specific questions to consider (such as whether the accommodation in which Campbell resided was provided by reason of his employment as a carer for his father).
Regarding the penalties, the UT instructed the FTT to determine whether HMRC had discharged the burden of establishing that Campbell’s failure to notify for the relevant periods was deliberate, and similarly, whether the amount of penalty should be affirmed or substituted.
The initial FTT decision was a default paper case without a hearing. While the UT noted that the FTT appeal took place at a time when Covid was still a significant concern, the UT was surprised that the FTT did not exercise its discretion to direct a video hearing, as it was clear that questions of fact and evidence were central to this appeal.
While the UT was satisfied this didn’t amount to a procedural error, it’s noteworthy the UT directed an oral hearing in remitting the case back to the FTT.