DECISION
1.
This is an appeal against the Closure Notice issued on 16 June 2010 in
respect of the tax year ended 5 April 2008, subsequently amended following an
internal review by HMRC dated 28 February 2011which reduced the additional tax
assessed from £63,344.20 to £32,856.96, making a total amount payable of
£40,696.76.
Undisputed Background Facts
2.
The Appellant acquired the property 121 Northfield Road, Crookes, Sheffield on 1 September 2007 for the sum of £194,950.00. The property was disposed of on 1
February 2008 for £325,000.00.
3.
The Appellant claimed estimated enhancement costs of £20,000. HMRC
disputed this figure on the basis that no documentary evidence supporting the
expenditure or detailing the improvements was provided by the Appellant.
4.
The disposal of the property was said to have been aided with a “Gifted
Deposit” of £60,040 provided by a company called Shevell Properties Limited, of
which the Appellant’s son was a director. The capital gains computation
submitted with the Appellant’s return showed a taxable chargeable gain of
£37,457.00. No other income was shown on the return.
HMRC Review
5.
Following a review HMRC informed the Appellant by letter dated 28
February 2011 that his liability was assessed as follows:
(a)
The consideration in the contract of sale of 121 Northfield Road was
£325,000.00 which should be used in the Appellant’s Capital Gains computation;
(b)
The payment of £60,040.00 described as a “Gifted Deposit” does not
qualify as an allowable deduction under Section 38 of the Taxation of
Chargeable Gains Act 1992 (“TCGA”);
(c)
No supporting evidence was provided by the Appellant in support of
estimated enhancement costs of £20,000.00;
(d)
“Other Income” initially assessed in the sum of £75,000.00 was reduced
to reflect unidentified deposits shown in the bank accounts of Mr Howard
Symonds and Mrs Ann Symonds in the total sum of £6,977.00;
(e)
The Appellant’s liability for the relevant period totalled £40,696.76.
The Appeal
6.
By Notice of Appeal dated 29 March 2011 the Appellant’s representative,
Mr Wine, appealed against the additional liability in respect of the capital
gains. The grounds of appeal confirm that the Appellant accepted HMRC’s
decision set out in its review letter of 28 February 2011 in respect of the
“other income” assessed in the sum of £6,977.00 but disputed HMRC’s decision
that the claimed enhancement expenditure and gifted deposit are not allowable
deductions for capital gains.
Legislation
7.
The relevant legislation is set out in the TCGA 1992 which provides as
follows:
Section 38: Acquisition and disposal
costs etc
(1) Except as
otherwise expressly provided, the sums allowable as a deduction from the
consideration in the computation of the gain accruing to a person on the
disposal of an asset shall be restricted to—
(a) the
amount or value of the consideration, in money or money's worth, given by him
or on his behalf wholly and exclusively for the acquisition of the asset,
together with the incidental costs to him of the acquisition or, if the asset
was not acquired by him, any expenditure wholly and exclusively incurred by him
in providing the asset,
(b) the
amount of any expenditure wholly and exclusively incurred on the asset by him
or on his behalf for the purpose of enhancing the value of the asset, being
expenditure reflected in the state or nature of the asset at the time of the disposal,
and any expenditure wholly and exclusively incurred by him in establishing,
preserving or defending his title to, or to a right over, the asset,
(c) the
incidental costs to him of making the disposal.
(2) For the
purposes of this section and for the purposes of all other provisions of this
Act, the incidental costs to the person making the disposal of the acquisition
of the asset or of its disposal shall consist of expenditure wholly and
exclusively incurred by him for the purposes of the acquisition or, as the case
may be, the disposal, being fees, commission or remuneration paid for the
professional services of any surveyor or valuer, or auctioneer, or accountant,
or agent or legal adviser and costs of transfer or conveyance (including stamp
duty [or stamp duty land tax]) together—
(a) in the
case of the acquisition of an asset, with costs of advertising to find a
seller, and
(b) in the
case of a disposal, with costs of advertising to find a buyer and costs
reasonably incurred in making any valuation or apportionment required for the
purposes of the computation of the gain, including in particular expenses
reasonably incurred in ascertaining market value where required by this Act.
(3) Except as
provided by section 40, no payment of interest shall be allowable under this
section.
(4) Any
provision in this Act introducing the assumption that assets are sold and
immediately reacquired shall not imply that any expenditure is incurred as
incidental to the sale or reacquisition.
for the purposes of this section the
amount charged to that tax is regarded as having been charged as the income of
B.]
8.
Section 17 states:
Section 17: Disposals and
acquisitions treated as made at market value
(1) Subject
to the provisions of this Act, a person's acquisition or disposal of an asset
shall for the purposes of this Act be deemed to be for a consideration equal to
the market value of the asset—
(a) where he
acquires or, as the case may be, disposes of the asset otherwise than by way of
a bargain made at arm's length, and in particular where he acquires or disposes
of it by way of gift or on a transfer into settlement by a settlor or by way of
distribution from a company in respect of shares in the company, or
(b) where he
acquires or, as the case may be, disposes of the asset wholly or partly for a
consideration that cannot be valued, or in connection with his own or another's
loss of office or employment or diminution of emoluments, or otherwise in
consideration for or recognition of his or another's services or past services
in any office or employment or of any other service rendered or to be rendered
by him or another.
(2)
Subsection (1) shall not apply to the acquisition of an asset if—
(a) there is
no corresponding disposal of it, and
(b) there is
no consideration in money or money's worth or the consideration is of an amount
or value lower than the market value of the asset
Evidence and Submissions
9.
On the morning of the hearing Mr Wine on behalf of the Appellant produced
a Statement of Case, a letter from Wine & Co to HMRC dated 21 February
2012, completion statement, excel spreadsheet containing a list of names of
laborours, together with renovation costs for a similar property and a witness
statement of Mr R. Symonds; the Appellant’s son. Mr R. Symonds was to be called
as a witness on the basis of his involvement with his father’s property. The
Appellant did not attend the hearing due to ill health and no request for a
postponement was made.
10.
The letter from Wine & Co to HMRC dated 21 February 2012 clarified:
“that although nothing has changed with regards our
chargeable gain calculation, we now realise that we have previously given you
some incorrect explanations of the “gifted deposit”
...some of the information we have given you is
misleading, whereby the gifted deposit was in connection with the sale and not
the purchase of 121 Northfield Road...
This is explained in great detail by Richard Symonds
the director/shareholder of Shevell Properties Ltd...”
11.
The Statement of Case provided further clarification:
“A “Gifted Deposit” of £60,040 was paid to the
purchasers of the property, Helen Coates and Neil Holland, by Shevell
Properties Ltd as the balance required by their Solicitors...
When Howard Symonds received the proceeds of sale from
his solicitors on 13 February 2008, he transferred to Shevell Properties Ltd on
14 February 2008, the sum of £60,040, in order to repay the debt.
This is clearly an expense on the sale of the
property.”
12.
It was submitted that the documents in support of the deduction of
£20,000 for property improvements were lost when Mr Symonds’ vehicle was
stolen, however cash payments were made to various contractors by Mr Symonds
which could be seen from bank account withdrawals. Mr Wine explained that many
of the contractors used were Polish and had left the UK since the sale of the
property, as a result of which no further documentary evidence of their work or
payment could be obtained. He invited the Tribunal to take a sympathetic view
of the evidence in light of the difficulties encountered by the Appellant in
substantiating his claim for improvements.
13.
In respect of the “Gifted Deposit” it was submitted that although no
challenge was made to the applicability of the legislation in respect of the
definition of “consideration”, the amount could fall within s. 38 (1) (c) TCGA
1992 as an incidental cost and we were invited to view the £60,040 as such.
14.
Mr Richard Symonds gave oral evidence to the Tribunal. He explained that
he specialised in buying, renovating and selling terraced properties in Sheffield and had assisted his father in respect of 121 Northfield Road by overseeing the
renovation and sale of the property. Mr Symonds stated that the investors who
purchased his father’s property had also bought properties from his (Mr Richard
Symonds’) company. The incentive offered on the purchase of 121 Northfield Road
were the same as those regularly used by Shevell Properties Ltd and included
15% deposit plus costs including stamp duty, legal fees, broker fees and
disbursements.
15.
As the Appellant did not have the immediately available capital to fund
the incentives, Shevell Properties Ltd provided the funds on the guarantee that
it would be repaid in full after completion. No contract or documentation
existed as this was an agreement between father and son.
16.
Mr Symonds clarified that the term “gifted deposit” was incorrect
although used by his father and Mr Wine, as essentially the figure was akin to
a loan or discount.
17.
As regards the renovation of the property, Mr R Symonds confirmed that
he had his own contractors due to his business and that his father, the
Appellant, had utilised that work force in order to save money. He confirmed
that the contractors were paid in cash and that the figure claimed for improvements
(£20,000) was correct, as although he could not recall any specific details as
to the types of work undertaken, he had previous experience through his
business of renovating similar properties and the costs incurred.
18.
Mrs Newham on behalf of HMRC highlighted the lack of documentary
evidence or detail provided by the Appellant in support of the £20,000
deduction claimed for improvements to the property. It is right to say that in
the substantial amount of time over which HMRC have corresponded with the
Appellant and his representative, no information was provided in support of the
claim despite HMRC’s requests. Mrs Newham, fairly and properly in our view,
accepted that the oral evidence of Mr Richard Symonds was relevant to the issue
and that, given the increase in value to the property between purchase and sale
by the Appellant, HMRC accepted that some improvements may have been carried
out. Mrs Newham submitted that the issue was a factual one for the Tribunal to
determine having heard the evidence.
19.
As to the issue of the “Gifted Deposit”, Mrs Newham submitted that by
virtue of s. 17 TCGA 1992 the issue of the property’s market value or
consideration must be considered and that the evidence shows this to be the
sale price of £325,000. Any payment required to purchase the property did not
de-value it and s. 38 TCGA 1992 does not provide for incentive payments as an
allowable deduction.
20.
Mrs Newham submitted that the incidental expenditure incurred in the
sale totalled £465, which brought the net proceeds down to £324,535.87.
Allowable incidental costs are limited to those provided for by the legislation
and were taken into account by HMRC as shown by the following computation:
|
Disposal Value
|
£324,535
|
|
Less Acquisition Value
|
£197,838
|
|
Capital Gain
|
£126,697
|
|
Less Annual Exempt Amount
|
£9,200
|
|
Taxable Chargeable Gains
|
£117,497
|
21.
HMRC submitted that tax of £40,381.40 is correctly charged and due on
the Appellant’s taxable gain of £117,497.
Decision
22.
Despite our concern as to the fact that the Appellant had only recently
clarified his case and the late service of evidence, particularly that of Mr
Richard Symonds, with the agreement of HMRC and in the interest of fairness and
justice, we admitted the evidence.
23.
There are essentially two issues for this Tribunal to determine, and we
will deal with each in turn.
24.
We noted HMRC’s concern as to the lack of documentation relating to
contractors used to carry out renovations on 121 Northfield Road. It was
correctly submitted on behalf of the Appellant that the assertion that the
documents had been stolen was never challenged by HMRC and we therefore
accepted this had been the case. Nevertheless, we found that the evidence
relating to the improvements carried out from Mr Richard Symonds was vague and
we noted the lack of any detail as to what was done, when and how long the
improvements took which, in our view, was information which could have been
provided by the Appellant at an earlier stage of HMRC’s enquiry. On balance, we
were just prepared to accept the oral evidence from Mr Richard Symonds which
was corroborated to a degree by the Appellant’s bank statements showing cash
withdrawals to the total of £16,800; £8,600 to “Mohammed A”, who was confirmed
as a contractor by Mr Richard Symonds and £8,200 cash withdrawals.
25.
As regards the amount of £60,040 we accepted HMRC’s submission that the
starting point was to determine the amount of consideration as per Lightman J
in Spectros International Plc v Madden:
“In calculating the chargeable gain arising on the
Taxpayer’s disposal of the shares, the starting point is to find the
consideration for the disposal.”
And Millet LJ in Goodbrand v Loffland Brothers North Sea
Inc:
“It is implicit that the consideration for the
disposal of an asset is the amount or value of the consideration in money or
money’s worth.”
26.
The only evidence in this case as to the consideration is the sale price
of the property. Whilst we noted Mr Richard Symond’s comments that value and
market price can be influenced by many factors, including how much a person is
prepared to pay, the fact remains that the only direct evidence before this
Tribunal is the sale price and mortgage provided to the purchasers of £276,250
(85% of the sale price). We therefore could not see any basis upon which it
could be said that the value of the property, and therefore the chargeable
gain, was less than that arising from the sale price.
27.
The legislation clearly defines what is allowable as an incidental cost
to the person making the disposal and we did not accept that the “gifted deposit”
or “incentive” could be deemed to be an incidental cost, but rather that it
formed part of the consideration.
28.
We therefore allow the appeal in respect of costs claimed for
improvements in to the sum of £16,800.
29.
We dismiss the appeal in respect of the Appellant’s claim of £60,040 as
an allowable deduction.
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: 16 March 2012
