In Mark Campbell v HMRC [2022] TC08398, the First Tier Tribunal (FTT) concluded that the purchase, modification and sale of four properties in five years was not trading but was subject to Capital Gains Tax (CGT). No Principle Private Residence (PPR) relief was available on the disposals as the properties did not have sufficient quality of occupation.
HMRC issued:
- a closure notice under section TMA 1970 s 28A for 2015–16, and
- discovery assessments under TMA 1970 s 29 for 2012–13 and 2014–15 and
- penalties under FA 2008 Schedule 41 for failure to notify liability to tax.
HMRC issued discovery assessments and raised penalties on the basis that:
- The Appellant was trading and profits should be subjected to Income Tax.
- The occupation of his parents’ house was not JRA.
- The omissions of the disposals represented deliberate behaviour.
Did the activity constitute trading?
On balance, the FTT considered that the activities were not trading.
While the Appellant generated profit from the activities, the length of ownership of the properties was short, the properties had been modified prior to sale and there was a repeated pattern of renovation.
There was no connection with an existing trade or activity over a protracted period of time and the Appellant was not a professional property developer.
A rather surprising conclusion.
Was PPR available?
PPR under TCGA 1992 s 222 was not available as there was no evidence to support the required degree of permanence, continuity or expectation of continuity of occupation in respect of any of the properties, council tax records showed the properties had all been empty for over two years and there was limited evidence to show work undertaken to make them habitable.
While no relief was available under section 222 TCGA 1992, it is nevertheless worth noting that any relief potentially available under section TCGA 1992 s 222 is subject to s 224(3), which prevents relief where the purpose of the acquisition was to realise a gain, or can limit relief where expenditure is incurred for the purposes of realising a gain.
Did the appellant occupy job related accommodation?
Residing in his parent’s house was not JRA under TCGA 1992 s 222(8).
Doctors’ letters supported that the Appellant cared for his father but that did not extend to supporting the proposition that the occupation of the property was JRA. The existence and desire to acquire and live in other properties confirmed that there was no employment requirement to live in the family home.
It was found that the accommodation was not provided for the purposes of employment, but rather was a family arrangement. A very predictable conclusion.
Were the discovery assessments valid?
The discovery assessments issued by HMRC were valid and the taxpayer could not displace the amounts on the grounds that:
- There was a valid discovery.
- Receipts and invoices were not retained, figures provided to HMRC were estimates from memory and these figures had been used by HMRC in their calculations.
- The taxpayer had failed to keep necessary records and evidence to substantiate the claims: he could not show the assessments raised were incorrect.
- Closure notices were valid.
Were the penalties appropriate?
The level of penalties raised was appropriate as there was deliberate behaviour and the appellant should have understood disposing of multiple properties would have tax implications or at least made enquiries to confirm.
The appeal was dismissed and assessments modified to reflect the findings.
The reporting of the decision is well worth reading for anyone interested in this area. Details may be found at:
https://www.casemine.com/judgement/uk/623236aeb50db9fc0c9262e5
