I had a letter earlier in the year from compliance officer regarding an undeclared capital gain made from a property sale (which I am guilty of).
At the time I was married living in our jointly owned marital home which was purchased in 1997. The said property was purchased in 2003 and sold in 2004'with a gain of approx 35k.
The mortgage on this property was in my name only, I am trying to look at angles to reduce my liability and was wondering can I claim joint cgt allowance on both mine and my wife's name as all our finances at the time were joint. The proceeds of the sale went to joint account etc I did read about a case where hmrc was trying to claim off two people even though the property was in the wife's name and at appeal hmrc lost in this circumstance though the wife wanted to be recognised as the single owner where hmrc was insisting it was joint. My case is the reverse of this.
The other angle I wish to clarify is that in 2008 I had a company that went into liquidation. I was personal guarantor to the bank and have been repaying 9k to them with about 3k to go. Can this be claimed as a cgt loss and set against the liability.
Sorry if the post is a bit confusing
CGT liability from 2003 need help
14 posts • Page 1 of 2 • 1, 2
CGT liability from 2003 need help
by Stan laurel on Sun Dec 04, 2011 9:35 am
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Re: CGT liability from 2003 need help
by mullet on Sun Dec 04, 2011 1:42 pm
As in the property on which you now have to pay CGT? Which I presume was never your only or main residence?The said property was purchased in 2003 and sold in 2004'with a gain of approx 35k.
What matters here is whether your wife was a beneficial owner of the property. I could sell and asset and give half of the money to someone else, but that does not by itself make the recipient a benefial owner. What paperwork do you have from that time? Remember that you cannot change history, so you may face this liability alone.The mortgage on this property was in my name only, I am trying to look at angles to reduce my liability and was wondering can I claim joint cgt allowance on both mine and my wife's name as all our finances at the time were joint.
The first question is whether or not this was a qualifying loan to a trading company and would therefore constitute an allowable capital loss. But even if it was a capital loss, I am afraid that such losses cannot be carried back (unless you're dead) and capital gains cannot be carried forward ... so no help to you.The other angle I wish to clarify is that in 2008 I had a company that went into liquidation. I was personal guarantor to the bank and have been repaying 9k to them with about 3k to go. Can this be claimed as a cgt loss and set against the liability.
Worst case scenario is £35,000 less AEA £8,200 (which year?) = £26,800 at your highest rate of tax. So liability might be £5,360 to £10,720. Remember that acquisition and disposal costs can be deducted from the gain.
I am following HMRC here and thinking capital disposal; but was this an adventure in the nature of trade? Why did you make a healthy gain in such a short time? Was there any enhancement work?
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Re: CGT liability from 2003 need help
by Stan laurel on Sun Dec 04, 2011 2:52 pm
Hi, first of all thanks for your reply.
You are correct the said property was never our main property. It was alive work unit and we reserved it off plan 2003 and planned to rent it to our company and use it as an office base. The building went one year over schedule so by the time it was finished we had another office. We was then going to rent it to another party but the developer had put a clause in the lease not allowing the units to be rented out for 2 years,so we had no choice but to sell.
What paper work would I need? The reason I decided to post on this forum was I was reading about another case where the rolls are reversed and the taxpayer was claiming even though the mortgage was in joint names for tax purposes she wanted the property just associated to her. It went to appeal and she won. So if hmrc assume just because the mortgage is only in one persons name it does not mean that one person is liable for capital gains and that if associated by marriage the you are jointly liable. ( I think that's how I have read it)
Regarding the other issue basically the personal guarantee was to a bank which they called in when the company went into liquidation. The personal guarantee was for 30k but at the time of liquidation there was 9k owing to the bank. I have been paying this back to the bank in installments for past 3 years and have about 2 more to go.
I have posted the article below to see if you think it has any relevance to my situation.
Beneficial Ownership
It ought to be straightforward enough to identify who has made a disposal for Capital Gains Tax (CGT) purposes. Of courses, tax is seldom black and white. The tax legislation offers little help. It simply states: “Tax shall be charged… in respect of capital gains, that is to say chargeable gains… accruing to a person on the disposal of assets” (TCGA 1992, s 1(1)).
Some tax advisers will no doubt be familiar with clients who have “taken their name off the deed” of property they own (e.g. transferring their legal interest to a spouse), in the hope or expectation that their CGT liability on a subsequent disposal of the property will disappear. However, the legal owner of an asset is not necessarily the beneficial owner. It is beneficial ownership (not legal ownership) which a CGT liability principally follows. But how is beneficial ownership determined for tax purposes? The first-tier tribunal recently considered this issue in Lawson v Revenue and Customs [2011] UKFTT 346 (TC).
Legal and beneficial owner
In that case, the taxpayer’s return on the disposal of a residential property was prepared on the basis that her husband was entitled to a half share of the capital gain arising. Following an enquiry into the return, HMRC concluded that the taxpayer was the sole legal and beneficial owner of the property, and that the whole gain was assessable on her. The taxpayer appealed, on the basis that her husband was also a beneficial owner of the property.
An independent review of HMRC’s decision was subsequently upheld. On the face of it, it is perhaps not surprising that HMRC’s decision was upheld, as the reasons given by the review included the following:
- Rental income received from the property was paid into the taxpayer’s bank account;
- The full amount of income and expenditure in respect of the property letting was included in the taxpayer’s return; and
- The proceeds from the sale of the property were paid into the taxpayer’s bank account.
The property had been bought using a combination of a family inheritance and savings, primarily as a residence for the taxpayer’s daughter who was attending college. The mortgage on the family home was in the name of the taxpayer’s husband, so the mortgage on the other property was taken out in the taxpayer’s sole name. However, she paid the mortgage on the family home, and her husband paid towards the mortgage on the other property.
The tribunal accepted that, at face value, the taxpayer was the legal and beneficial owner of the property. However, it was clear to the tribunal that the true purpose of purchasing the property was to provide stable and secure accommodation for the taxpayer’s daughter, as opposed to being held for investment purposes. The level of net rental income was a strong indication as to the lack of commerciality (the daughter contributed to bills as and when she could afford to). The tribunal had no doubt that the taxpayer and her husband shared all assets between them and held an equal and beneficial interest in all properties owned. This was on the basis of their relationship, irrespective of who held the legal title. The tribunal was entirely satisfied on the evidence that the taxpayer and her husband were beneficial owners of the property, and allowed the taxpayer’s appeal.
Beneficial ownership factors
HMRC listed a number of factors in the above case, which are taken into account by HMRC in assessing whether a beneficial interest is held by a third party. The tribunal in the Lawson case considered these factors in reaching its decision in the taxpayer’s favour. These factors (which are also listed in the Capital Gains Manual at CG70230) are:
(a) Legal title;
(b) Occupation of the property;
(c) Receipt of any rental income;
(d) Provision of funds to purchase; and
(e) Receipt of sale proceeds on disposal.
HMRC’s guidance states that no single factor is determinative, and that each case must be considered in the light of its own particular facts. Nevertheless, applying the same factors as HMRC may be helpful in cases where beneficial ownership is in doubt.
Spouses and Civil partners
In the case of a married couple (or civil partnership), a further factor may be added to those listed above, namely whether a Form 17 has been submitted to HMRC. Form 17 is broadly a declaration where the beneficial ownership of an asset is divided other than equally between the couple, and the split of beneficial ownership of both the asset and income from it is identical. Form 17 states what the split is. HMRC states (at CG22020): “If such a declaration has been made you should treat it as evidence of the existence of an express agreement concerning the ownership of the asset and you should follow that split in assessing the gains on the disposal of that asset.” Of course, the Form 17 declaration is not compulsory, so the absence of a declaration is not evidence in itself that beneficial ownership is equal.
HMRC will generally assume (in the absence of Form 17) that if one spouse (or civil partner) paid for an asset and is the sole legal owner, that they are also the beneficial owner, unless there is evidence to the contrary (CG22023). The same applies if all the disposal proceeds are retained by one of them. However, HMRC also acknowledge that a presumption about beneficial ownership may be rebutted. For example, one spouse may have acquired the property as a gift to the other. In addition, HMRC recognises that a spouse without a legal interest may have an equitable interest, by reference to the extent of their contribution to providing the family home. This principle has also been considered by the Courts in the context of divorce proceedings or claims by unmarried former co-habitees.
In the absence of factual evidence to determine beneficial ownership, on the disposal of an asset HMRC will seek to tax the spouse (or civil partner) with legal title, or if they have joint legal title, on a 50:50 ownership basis. Keeping good records and evidence will therefore be important, particularly in cases where beneficial ownership is unclear.
The above article is reproduced from ‘Practice Update’ (July/August 2011), a tax Newsletter produced by Mark McLaughlin Associates Ltd. To download current and past editions of Practice Update, see the Newsletters section.
This entry was posted on Tuesday, August 2nd, 2011 at 5:39 am and is filed under Articles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
You are correct the said property was never our main property. It was alive work unit and we reserved it off plan 2003 and planned to rent it to our company and use it as an office base. The building went one year over schedule so by the time it was finished we had another office. We was then going to rent it to another party but the developer had put a clause in the lease not allowing the units to be rented out for 2 years,so we had no choice but to sell.
What paper work would I need? The reason I decided to post on this forum was I was reading about another case where the rolls are reversed and the taxpayer was claiming even though the mortgage was in joint names for tax purposes she wanted the property just associated to her. It went to appeal and she won. So if hmrc assume just because the mortgage is only in one persons name it does not mean that one person is liable for capital gains and that if associated by marriage the you are jointly liable. ( I think that's how I have read it)
Regarding the other issue basically the personal guarantee was to a bank which they called in when the company went into liquidation. The personal guarantee was for 30k but at the time of liquidation there was 9k owing to the bank. I have been paying this back to the bank in installments for past 3 years and have about 2 more to go.
I have posted the article below to see if you think it has any relevance to my situation.
Beneficial Ownership
It ought to be straightforward enough to identify who has made a disposal for Capital Gains Tax (CGT) purposes. Of courses, tax is seldom black and white. The tax legislation offers little help. It simply states: “Tax shall be charged… in respect of capital gains, that is to say chargeable gains… accruing to a person on the disposal of assets” (TCGA 1992, s 1(1)).
Some tax advisers will no doubt be familiar with clients who have “taken their name off the deed” of property they own (e.g. transferring their legal interest to a spouse), in the hope or expectation that their CGT liability on a subsequent disposal of the property will disappear. However, the legal owner of an asset is not necessarily the beneficial owner. It is beneficial ownership (not legal ownership) which a CGT liability principally follows. But how is beneficial ownership determined for tax purposes? The first-tier tribunal recently considered this issue in Lawson v Revenue and Customs [2011] UKFTT 346 (TC).
Legal and beneficial owner
In that case, the taxpayer’s return on the disposal of a residential property was prepared on the basis that her husband was entitled to a half share of the capital gain arising. Following an enquiry into the return, HMRC concluded that the taxpayer was the sole legal and beneficial owner of the property, and that the whole gain was assessable on her. The taxpayer appealed, on the basis that her husband was also a beneficial owner of the property.
An independent review of HMRC’s decision was subsequently upheld. On the face of it, it is perhaps not surprising that HMRC’s decision was upheld, as the reasons given by the review included the following:
- Rental income received from the property was paid into the taxpayer’s bank account;
- The full amount of income and expenditure in respect of the property letting was included in the taxpayer’s return; and
- The proceeds from the sale of the property were paid into the taxpayer’s bank account.
The property had been bought using a combination of a family inheritance and savings, primarily as a residence for the taxpayer’s daughter who was attending college. The mortgage on the family home was in the name of the taxpayer’s husband, so the mortgage on the other property was taken out in the taxpayer’s sole name. However, she paid the mortgage on the family home, and her husband paid towards the mortgage on the other property.
The tribunal accepted that, at face value, the taxpayer was the legal and beneficial owner of the property. However, it was clear to the tribunal that the true purpose of purchasing the property was to provide stable and secure accommodation for the taxpayer’s daughter, as opposed to being held for investment purposes. The level of net rental income was a strong indication as to the lack of commerciality (the daughter contributed to bills as and when she could afford to). The tribunal had no doubt that the taxpayer and her husband shared all assets between them and held an equal and beneficial interest in all properties owned. This was on the basis of their relationship, irrespective of who held the legal title. The tribunal was entirely satisfied on the evidence that the taxpayer and her husband were beneficial owners of the property, and allowed the taxpayer’s appeal.
Beneficial ownership factors
HMRC listed a number of factors in the above case, which are taken into account by HMRC in assessing whether a beneficial interest is held by a third party. The tribunal in the Lawson case considered these factors in reaching its decision in the taxpayer’s favour. These factors (which are also listed in the Capital Gains Manual at CG70230) are:
(a) Legal title;
(b) Occupation of the property;
(c) Receipt of any rental income;
(d) Provision of funds to purchase; and
(e) Receipt of sale proceeds on disposal.
HMRC’s guidance states that no single factor is determinative, and that each case must be considered in the light of its own particular facts. Nevertheless, applying the same factors as HMRC may be helpful in cases where beneficial ownership is in doubt.
Spouses and Civil partners
In the case of a married couple (or civil partnership), a further factor may be added to those listed above, namely whether a Form 17 has been submitted to HMRC. Form 17 is broadly a declaration where the beneficial ownership of an asset is divided other than equally between the couple, and the split of beneficial ownership of both the asset and income from it is identical. Form 17 states what the split is. HMRC states (at CG22020): “If such a declaration has been made you should treat it as evidence of the existence of an express agreement concerning the ownership of the asset and you should follow that split in assessing the gains on the disposal of that asset.” Of course, the Form 17 declaration is not compulsory, so the absence of a declaration is not evidence in itself that beneficial ownership is equal.
HMRC will generally assume (in the absence of Form 17) that if one spouse (or civil partner) paid for an asset and is the sole legal owner, that they are also the beneficial owner, unless there is evidence to the contrary (CG22023). The same applies if all the disposal proceeds are retained by one of them. However, HMRC also acknowledge that a presumption about beneficial ownership may be rebutted. For example, one spouse may have acquired the property as a gift to the other. In addition, HMRC recognises that a spouse without a legal interest may have an equitable interest, by reference to the extent of their contribution to providing the family home. This principle has also been considered by the Courts in the context of divorce proceedings or claims by unmarried former co-habitees.
In the absence of factual evidence to determine beneficial ownership, on the disposal of an asset HMRC will seek to tax the spouse (or civil partner) with legal title, or if they have joint legal title, on a 50:50 ownership basis. Keeping good records and evidence will therefore be important, particularly in cases where beneficial ownership is unclear.
The above article is reproduced from ‘Practice Update’ (July/August 2011), a tax Newsletter produced by Mark McLaughlin Associates Ltd. To download current and past editions of Practice Update, see the Newsletters section.
This entry was posted on Tuesday, August 2nd, 2011 at 5:39 am and is filed under Articles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
- Stan laurel
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Re: CGT liability from 2003 need help
by AvocadoK on Sat Dec 17, 2011 11:16 pm
It is too late for HMRC to assess a gain in 2003/04 or 2004/05, unless they can demonstrate that the error was deliberate. The onus is on them. You therefore need to be careful what you say. Nothing, would be an option!
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Re: CGT liability from 2003 need help
by AvocadoK on Sat Dec 17, 2011 11:17 pm
It is too late for HMRC to assess a gain in 2003/04 or 2004/05, unless they can demonstrate that the error was deliberate. The onus is on them. You therefore need to be careful what you say. Nothing, would be an option!
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Re: CGT liability from 2003 need help
by King_Maker on Wed Jan 04, 2012 12:13 pm
AvocadoK wrote:It is too late for HMRC to assess a gain in 2003/04 or 2004/05, unless they can demonstrate that the error was deliberate. The onus is on them. You therefore need to be careful what you say. Nothing, would be an option!
It seems a bit late to profess ignorance - not that it would help, as, under SA, it's the taxpayer's responsibility to calculate the CGT.
The OP needs to try and avoid the penalty for fraud rather than negligence.
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Re: CGT liability from 2003 need help
by King_Maker on Wed Jan 04, 2012 12:15 pm
I think a case might be possible for a Trust situation to enable a claim for the wife's CGT allowance.
I recommend obtaining professional advice asap.
I recommend obtaining professional advice asap.
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Re: CGT liability from 2003 need help
by AvocadoK on Wed Jan 04, 2012 7:57 pm
King_Maker wrote:it's the taxpayer's responsibility to calculate the CGT
True, but that does not mean that the failure to do so is deliberate. In fact, HMRC give as an example of carelessness (rather than deliberate error), the failure to disclose a gain on the sale of a property.
To assess the gain, a discovery assessment must be raised, and that requires HMRC to demonstrate deliberate error where 6 tax years have passed. This is an enormous hurdle.
AK
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Re: CGT liability from 2003 need help
by wamstax on Thu Jan 05, 2012 1:59 am
Be careful in seeking to hide behind HMRC's uphill task to prove that an error was deliberate if for any reason your tax returns were incorrect in other respects. Your failure to respond to HMRC's reasonable enquiries might also serve to "prove" that your tax evasion was deliberate and you have continued to snub your nose at them.
As regards your claim for a CG loss on the gaurantee please see the following link
http://www.hmrc.gov.uk/helpsheets/hs296.pdf
but this is unlikely to be of any effect on your CGT Liability on the property disposal. The loss could of course be carried forward (but not back) against any future gains.
As regards your claim for a CG loss on the gaurantee please see the following link
http://www.hmrc.gov.uk/helpsheets/hs296.pdf
but this is unlikely to be of any effect on your CGT Liability on the property disposal. The loss could of course be carried forward (but not back) against any future gains.
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Re: CGT liability from 2003 need help
by Stan laurel on Wed Jan 18, 2012 5:00 pm
Sorry not been back for a while to check responses.
The compliance team contacted me middle of march 2011 regarding this matter so it was just in the 6 year timeframe.
They have said that they cannot impose any penalties now because of being out of time limit. They have added interest, currently looking at a bill around 13k.
Regarding seeking the advice of a professional...well thats another story. I currently work outside of the uk so visits back are only a couple of times per year. I did make an appointment with an accountant who also claimed to be a specialist in tax investigation. I went to their offices end march 2011 signed a form for them to represent me he asked a few questions I handed over an advance payment. Since then it's been a struggle to get any information from them. I had one email in June asking to confirm where I was living for different dates between 1997 to 2011. I responded swiftly then nothing again for months. I was emailing them all the time asking for updates but no replies.
Finally I was back in December to see my kids for Christmas. I called his secretary and said I wanted copies of all correspondace that has gone back and forth between their offices and hmrc. If this was not done by next day I will visiting the office. Had the email within the hour.
After reading what he wrote he has just made things worst for me. He put down I separated form my wife 2004 when it was 2007 ( we still had a business together until 2007 and brought 2 BTL properties before our marriage ended)
I think it maybe too late to appeal now and I am stuck with the outcome. Does anyone think I have a chance if I found someone who is specialist in this field. As the first one I employed was clearly not and it now just seems he was after a fee upfront.
The compliance team contacted me middle of march 2011 regarding this matter so it was just in the 6 year timeframe.
They have said that they cannot impose any penalties now because of being out of time limit. They have added interest, currently looking at a bill around 13k.
Regarding seeking the advice of a professional...well thats another story. I currently work outside of the uk so visits back are only a couple of times per year. I did make an appointment with an accountant who also claimed to be a specialist in tax investigation. I went to their offices end march 2011 signed a form for them to represent me he asked a few questions I handed over an advance payment. Since then it's been a struggle to get any information from them. I had one email in June asking to confirm where I was living for different dates between 1997 to 2011. I responded swiftly then nothing again for months. I was emailing them all the time asking for updates but no replies.
Finally I was back in December to see my kids for Christmas. I called his secretary and said I wanted copies of all correspondace that has gone back and forth between their offices and hmrc. If this was not done by next day I will visiting the office. Had the email within the hour.
After reading what he wrote he has just made things worst for me. He put down I separated form my wife 2004 when it was 2007 ( we still had a business together until 2007 and brought 2 BTL properties before our marriage ended)
I think it maybe too late to appeal now and I am stuck with the outcome. Does anyone think I have a chance if I found someone who is specialist in this field. As the first one I employed was clearly not and it now just seems he was after a fee upfront.
- Stan laurel
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- Joined: Sun Dec 04, 2011 9:18 am
14 posts • Page 1 of 2 • 1, 2
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