John and Janet Beesley, a married couple, have lost their appeal against a significant capital gains tax demand from HMRC. They were slapped with a total of £63,541 for the sale of a property they jointly owned ...
HMRC, noticing the oversight in May 2018, alerted the couple and their tax agent. They indicated that the Beesleys had not declared any capital gains or trading profits from a recent property sale. This prompted a response from the couple's accountant in October 2018, wherein he provided what he believed was the corrected CGT computation.
This computation detailed a sale price for the property at £395,037. The accountant subtracted the mortgage redemption value of £186,345 and a personal guarantee of £152,016. This deduction implied a tax of £607.95, calculated at a 10% rate on the remaining amount.
However, HMRC swiftly countered this. They clarified that deductions related to mortgage redemption and personal guarantees were not applicable for CGT purposes. The correct computations would only factor in the initial purchase price of £103,000, legal fees, and the stamp duty land tax (SDLT).
Due to this significant oversight, HMRC not only raised the relevant assessments, but also levied penalties on the Beesleys. The inaccuracy in the initial declaration was seen as deliberate.
The Beesleys' agent, in response, put forward a fresh computation, estimating gains of £17,264.40 per taxpayer. He justified this revision as a result of miscommunications and accused HMRC of fabricating the capital gain assessment.
When the matter reached the Tribunal, the Beesleys presented their side. They explained that their primary motivation to sell the property was to alleviate the financial strain caused by their family business's liquidation in 2015. They further presented two claims related to money borrowed from the Bank of Ireland to mortgage the property and subsequent loans to the family business.
However, HMRC countered these arguments. They highlighted the lack of tangible evidence connecting the said loans to any qualifying criteria as per legislation. Moreover, there was no clear indication that the borrowed money was used for the Beesleys' trade or even that they were actively trading.
The law, specifically section 38 of the Taxation of Chargeable Gains Act 1992 (TCGA), is explicit about what qualifies for deductions in Capital Gains Tax. This section clearly enumerates that only the purchase price, the incidental purchase costs, sale costs, and any amount spent on property enhancements can be deducted.
In the tribunal's conclusion, the judges sided with HMRC. They agreed that the Beesleys and their agent had not provided adequate evidence of a qualifying loan. Furthermore, the payment timing did not align with the tax year in question.
The tax agent's evident lack of understanding of basic CGT principles was key factor in the judgement. I feel that the agent's assertion regarding the law's prohibitions was entirely misplaced. Section 38 TCGA was unequivocal about allowable deductions.
Given the evidence and arguments, the tribunal upheld HMRC's computations and assessments. The Beesleys' appeals were dismissed, cementing HMRC's position in the matter.
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