HMRC Loses Property CGT Appeal Over Lack of Evidence
A claim from HM Revenue and Customs (HMRC) demanding tax on a property sold for a gain of £730,000 was thrown out by a tribunal.
HMRC argued that property seller Paul Munford owed almost £190,000 in CGT and penalties because he deliberately avoided the tax by claiming private residence relief to which he was not entitled.
Mr Munford bought a property to refurbish in Halsey Street, London SW3, for £1.05 million in 2004.
The property was sold in March 2006 for £2.55 million.
Mr Munford and his wife elected the property as their main home between December 19 and 26, 2005.
HMRC argued that a week in residence was not long enough for him to claim the property was the main home.
But the First-Tier Tax Tribunal upheld Mr Munford’s appeal on the grounds HMRC could not prove he should not claim the relief even though he agreed he only lived in the house for a week.
For Mr Munford, lawyer Michael Firth argued that his client did not need to call witnesses or give evidence as the burden of proof lay with HMRC and that an allegation Mr Munford deliberately did not pay tax on the gain was untrue.
This was important because HMRC was late investigating Mr Munford’s tax return, and the probe could not proceed if they could not show his actions gave them grounds to open an inquiry.
The tribunal pointed out that rather than accusing Mr Munford of contriving he could claim private residence relief, HMRC encouraged taxpayers to use the law to minimise the tax they should pay.
“A passage from the HMRC Capital Gains Manual, CG64510 shows how private residence relief could be maximised by varying notices given under section 222(5) Taxation of Chargeable Gains Act 1992,” said the ruling.
“Far from the elections being regarded as contrived, it appeared from that passage that HMRC supported, or at least did not object to, tax planning in this context. The idea had been to get the gain on the one property down to the smallest possible time so as not to affect the relief on the other property. This was exactly what HMRC’s Manual talked about doing.”
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