[2011] UKFTT 346 (TC)
TC01206
Appeal number:
TC/2009/14139
Closure
notice and amendment to self assessment – capital gains tax liability – whether
correctly assessable in full on Appellant – appeal allowed
FIRST-TIER TRIBUNAL
TAX
MRS
YVONNE LAWSON Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
Ms J. Blewitt (Judge)
Mr
R. D. Corke (Member)
Sitting in public at Birmingham on 15 April 2011
Mrs Lawson, the Appellant
appeared unrepresented
Mrs Robinson, Presenting
Officer instructed by the General Counsel and Solicitor to HM Revenue and
Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. By
Notice of Appeal dated 14 September 2009 the Appellant appealed against a
closure notice and amendment to self assessment for the year ended 5 April 2006
in the amount of £5,781.44, including capital gains tax liability in the sum of
£5,777.60.
Background Facts
2. The
Appellant was not originally within the Self Assessment system due to the fact
that her sole income was from PAYE employment.
3. HMRC
identified that the Appellant was in receipt of rental income and may have been
liable to capital gains tax in respect of a property. As a result, a tax return
was issued for the year ended 5 April 2006 on 21 July 2008.
4. The
return was received by HMRC on 22 October 2008 and showed employment income,
income from property and a taxable capital gain (after the annual exempt
amount) of £7,442.59. The rent shown was £2,000 and after expenses the net
income from renting was £32.32 which was covered by losses brought forward of
£2,690.83. The Appellant’s agent, Mr Rajani of Rajani & Co, provided a
supporting calculation showing that the taxable capital gain included a double
claim for the annual exempt amount on the basis that the Appellant’s husband,
Mr Lawson, was entitled to a half share of the gain.
5. The
capital gain in question arose from a property, 141 Southampton Road, Northampton which was purchased on 26 February 2002 for the sum of £78,000. This property
was sold on 1 August 2005 for £116,500.
6. HMRC
opened an enquiry into the return under Section 9A Taxes Management Act (“TMA”)
1970 on 8 December 2008. On 14 May 2009 the enquiry was closed by notice under
Section 28A (1) and (2) TMA 1970. HMRC concluded that the Appellant was the
sole legal and beneficial owner of the property at Southampton Road and
consequently the whole of the gain is assessable on her.
7. By
letter dated 3 July 2009 the Appellant formally requested an independent review
of HMRC’s decision.
8. The
review was completed and notified to the Appellant on 13 August 2009. The
Review Officer upheld HMRC’s decision of 14 May 2009 for the following reasons:
(a)
The legal title of the property was in the Appellant’s name and in the absence
of any evidence to the contrary, the legal owner is usually the beneficial
owner;
(b)
Rental income received from the property was paid into the Appellant’s
bank account;
(c)
The full amount of both income and expenditure in relation to the
letting of the property was included in the Appellant’s tax return and had the
property been jointly owned then the rental income should be declared in equal
shares;
(d)
The proceeds from the sale of the property were paid into the
Appellant’s bank account;
(e)
On 20th October 2008, the Appellant’s accountant advised HMRC
that Mr Lawson had omitted to include his share of the gain in his 2005/2006
tax return. HMRC’s response was one of surprise and queried why, if as
contended by the Appellant Mr Lawson held a beneficial interest in the
property, the gain was omitted;
(f)
Bank statements of Mr Lawson provided to HMRC were deemed insufficient
to prove that payments of £378 (which were transferred regularly from his
account into that of the Appellant) were made in order to satisfy the mortgage
payments at Southampton Road.
Issue
9. The
Appellant did not dispute that she was the legal owner of the property. HMRC
accepted that the legal owner of an asset is not necessarily its beneficial
owner and that it is beneficial ownership which the tax principally follows.
10. The issue for
the Tribunal to determine was whether, as contended by the Appellant, Mr Lawson
was also a beneficial owner of the property.
Evidence
11. We were provided
with correspondence between HMRC and the Appellant’s agent which we considered
carefully. The Appellant also gave oral evidence in which she confirmed and
clarified a number of the points raised in correspondence.
12. The Appellant
explained that the property was bought primarily as a residence for her
daughter who was attending college and working part-time in Northampton. Mrs
Lawson stated that the money used to purchase the property had come from a
combination of inheritance she had received from her mother as a beneficiary of
the will and family savings. The inheritance was combined with proceeds of an
endowment policy in Mr Lawson’s name which was then used to purchase the
property at Southampton Road.
13. Mrs Lawson
clarified that the family home (where she and her husband reside) is mortgaged
in her husband’s name although she, the Appellant, had always paid the
mortgage. Due to the fact that Mr Lawson already had a mortgage, the couple
were advised to apply for a mortgage in the Appellant’s sole name in order to
purchase the property at Southampton Road. We accepted the Appellant’s evidence
that when the property at Southampton Road was purchased, the couple agreed
that Mr Lawson would pay towards the mortgage on Southampton Road and the
Appellant would continue to pay the mortgage on the family home.
14. The property at
Southampton Road was sold as a result of a tragic incident at the house, which
prompted the Appellant and her husband to sell the property; the proceeds of
which were used to pay off the mortgages remaining on the family home and
Southampton Road and reinvest in another property.
15. The Appellant
stated that her daughter would pay towards the bills but that the contributions
varied and were dependent on her daughter’s financial state at the time. The
Appellant confirmed that the mortgage payments were in the region of £400 per
month, and that she and Mr Lawson had calculated the amount that Mr Lawson was
able to afford to contribute towards the mortgage payments and bills.
16. The Appellant
confirmed that this arrangement was still ongoing; Mr Lawson continues to pay
towards the second property of which Mrs Lawson is the legal owner. The
Appellant stated that having been married for over 20 years, the properties are
considered by the couple to belong to each in equal shares; by way of example
the Appellant stated that the legal title of the premises from which her
husband practices is held by Mr Lawson and that the mortgage had been paid by
the Appellant on the basis that it is jointly owned. The Appellant explained
that her husband is self-employed and has only one account. Consequently all of
the couple’s money, including contributions from Mr Lawson towards mortgage
payments and joint savings, are put into the Appellant’s account.
17. In cross
examination the Appellant accepted that the only statements provided in support
of her contention were those of Mr Lawson showing regular payments being
transferred into the account of “Lawson Y M Loan a/c.” The Appellant clarified
that this is the mortgage account. The Appellant explained that documents
pertaining to the mortgage on the property at Southampton Road could not be
produced as the documents no longer existed at the time that the issue relating
to tax arose.
18. The Appellant
stated that the amount contributed by her husband towards the mortgage on Southampton road was between 80% and 90% of the mortgage and this was the extent of what
could be afforded.
19. The Appellant
stated that the family home and the premises from which her husband practices
are held in Mr Lawson’s sole name, but that they are jointly shared by the
couple. The Appellant stated that the same view was held by the couple in
relation to the property in Mrs Lawson’s name; namely that it was jointly
owned.
Submissions
20. In closing, Mrs
Robinson for HMRC submitted that the factors taken into account by HMRC in
assessing whether a beneficial interest is held by a third party are:
(a)
Legal title;
(b)
Occupation of the property;
(c)
Receipt of rental;
(d)
Provision of funds to purchase;
(e)
Receipt of proceeds on disposal.
21. Mrs Robinson
submitted that in looking at these factors, HMRC’s view is that the Appellant
is both the legal and beneficial owner. Mrs Robinson relied on the fact that
the property at Southampton Road was purchased using the Appellant’s
inheritance, that the Appellant is the legal owner and that there is little
documentary evidence provided by the Appellant in support of her assertions. Mrs
Robinson also noted the reference in correspondence to Mr Lawson amending his
tax return and the fact that he had not included his purported share in Southampton Road in the first place.
22. In closing, the
Appellant reiterated that the mortgage on Southampton Road had been paid by her
husband. Mrs Lawson submitted that there is no legal requirement as to how a
couple should manage their finances and that after in excess of 21 years of
marriage the trust between the couple is such that, irrespective of whose name
is on the legal title to a property, all possessions are jointly owned.
Decision
23. We make no
criticism of the view taken by HMRC, and accept that at face value, all
indicators pointed towards the fact that Mrs Lawson was the legal and
beneficial owner the property at Southampton Road.
24. However, we
found the Appellant to be a credible and persuasive witness who gave clear and
unequivocal evidence. It was quite clear to us that the true purpose of
purchasing the property at Southampton Road was to provide stable and secure
accommodation for Mr and Mrs Lawson’s daughter as opposed to being held for
investment purposes. We found as a fact that a strong indication as to the lack
of commerciality could be seen in net income from rents.
25. 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. 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.
26. In considering
the remaining factors outlined by HMRC as relevant to the issue, we accepted
the Appellant’s evidence that the property was not let to tenants, but was, in
effect, a second family home to be used by Mr and Mrs Lawson’s daughter. We
accepted that no “rent” as such was received from Mrs Lawson’s daughter, who
contributed to bills as and when she could afford to do so.
27. We accepted Mrs
Lawson’s evidence that the money used to fund the purchase came from two
sources; the inheritance she received and the couple’s savings. We found it
significant that the savings included the proceeds of an endowment policy which
had been held solely in Mr Lawson’s name. In such circumstances, we found that
the provision of funds with which the property was purchased came from both Mr
and Mrs Lawson.
28. We accepted the
Appellant’s evidence as to the fact that all monies were paid into her account
due to the fact that Mr Lawson only had one account as a sole trader and we
found that this did not negate the beneficial interest that Mr Lawson had in
the property at Southampton Road.
29. We were
entirely satisfied on the evidence of the Appellant that the Appellant and Mr
Lawson were beneficial owners of 141 Southampton Road. Accordingly we allow the
appeal.
30. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
TRIBUNAL JUDGE
RELEASE DATE: 25 May 2011
