A taxpayer has partially won his case at the Upper Tribunal (UT) regarding capital gains made on property he owned while living in his parent’s house while looking after his father.  Between December 2010 and March 2016, just over five years the taxpayer had bought and sold four homes, making gains of around £222k.  For two of the impacted tax years the taxpayer didn’t submit a tax return but did for a later tax year.  HMRC issued discovery assessments for the two homes sold in earlier tax years and opened an enquiry and then issued closure notices for the two homes sold in the later tax year.  The taxpayer appealed and the case was decided in the First-tier Tribunal (FTT).

The UT has now reviewed the decisions of the FTT and has decided to set aside three of the decisions made by the FTT and has remitted the case back to the FTT so the fact-finding tribunal can find the necessary facts in relation the remitted points.

HMRC had cross appealed the FTT’s decision that the disposals of the home did not amount to a trade.  The UT has upheld the FTT’s findings holding that they could not find any error of principle.  The UT also dismissed one of the taxpayer’s grounds that the discovery assessment were not validly made finding that HMRC had extinguished the burden of proof showing it had made a discovery.

The taxpayer held that the gains were exempt as he was residing in job related accommodation (JRA) and was employed to look after his father who had a medical condition but intended to move into the four properties at some point.  The FTT found that the taxpayer living at his parent’s house to look after his father was a family arrangement and therefore the accommodation was not JRA and therefore couldn’t pass the first necessary condition to be eligible for relief.  The UT has found that the FTT erred in law when reaching this decision as it hadn’t applied the relevant test.  The legislation states that accommodation must be ‘provided for him by reason of his employment’ and there is plenty of case law to determine whether something is provide ‘by reason of employment’.  The UT held that the FTT didn’t address this issue but only concentrated on the family relationship and had therefore erred in law.

The UT also found that the FTT hadn’t addressed the second condition to be eligible for JRA relief, being the taxpayers intention to occupy the homes purchased.  The UT noted that the intention of the taxpayer had been discussed in relation to private residence relief but not in relation to JRA relief.  The UT held that a differently constituted FTT will have to find facts as to whether there was an intention of the taxpayer to occupy the homes in relation to JRA relief as transposing the intention of occupation from the analysis for private residence relief.

The UT also upheld the taxpayer’s appeal that penalties had been issued harshly.  The penalties for the discovery assessments and closure notice were held at a level consistent with deliberate behaviour but the taxpayer contended that there was no evidence of deliberate behaviour.  The UT overturned the FTT’s acceptance of the penalties finding that the FTT had no evidence and hadn’t discussed the level of the fines.

The decision can be found at: MARK CAMPBELL v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2023] UKUT 00265 (TCC) – GOV.UK (www.gov.uk)

As a firm we feel it is unlikely that the taxpayer will ultimately win as it is likely that when a new reconstituted FTT reviews the intention to occupy in relation to JRA relief that a very similar facts will be found but it is good news that penalties will be reviewed, hopefully leading to much reduced charged.

Please contact if you have any questions on capital gains tax and negotiations with HMRC.  The above case highlights that even the FTT can make mistakes when reviewing penalties.