‘Inadequately and carelessly’ assembled bundle contributed to HMRC’s loss of a case against a property owner over the sale of several £1m plus properties in London
The appellant, Gary Ives, disputed a string of discovery assessments and penalties issued by HMRC under section 29 and s95 of the Taxes Management Act related to tax years running from 2003/4 through to 2013/14. The disputed tax and penalties totalled just under £1m.
The case at the First Tier Tribunal revolved around the sale of several million pound plus properties and whether profits from the sale of the houses were exempt from capital gains tax (CGT) as gains arising on disposals of the individual’s sole or main residence.
The main issue was whether Ives bought and sold these properties for profit via trading and if so, whether they were liable for income tax. Section 989 of Income Tax Act 2007 states that trade ‘includes any venture in the nature of trade’.
The closure notices related to three properties bought and sold in a short period of time and were the more significant factor in the case.
The first property in Fulham was bought for £760,000 in 2008 and sold in 2010 for £1.7m. The second was a house in Wandsworth, bought in 2010 for £750,000 and sold for £1.5m in 2012. The final property, again in Fulham, was bought for £1.7m in 2012 and sold for £3.25m a year later.
The properties were all upgraded in the periods of ownership leading HMRC to question whether Ives was buying and selling the houses for' trading profits', which are subject to tax.
Ives, a plasterer by trade, argued that the properties were used as his sole residence and as such when they were sold were exempt from capital gains tax (CGT) due to principal private residence (PPR) under s222 of Taxation of Chargeable Gains Act 1992 (TCGA).
Before the proceedings even started, the tribunal judge scolded HMRC over the quality of its evidence.
The tribunal judge said: ‘HMRC’s inadequate marshalling of evidence had been pointed out to the officer dealing with the case at the time in April 2022, when the scheduled hearing was cancelled by Judge Fairpo. HMRC have had a long time to put this in order, but have not done so.’
The appellant’s lawyer Michael Avient said the bundle was ‘inadequately and carelessly assembled’ as it was missing evidence which was supposed to have been attached, such as the schedules to the closure notices showing calculations made by HMRC’s investigating officer, Ms De Sio. These mistakes were acknowledged by HMRC’s legal counsel Daniel Hickey-Baird at the hearing, although he had nothing to do with building the case on Ives.
During the hearing, Ives claimed he had been living in the properties when he owned them, producing endless witness statements from friends and family visiting the houses, and companies delivering goods.
One witness Gareth Morgan, director of Morgan’s Dairy, confirmed that his company had delivered milk to the three addresses up until December 2013. Others described the properties as family homes ‘suitable for hosting dinner parties and fully furnished as a family home would be’.
HMRC argued that Ives did not use the properties as residential buildings because a council tax reduction was applied for as the buildings were not inhabited. There was a claim that Ives was a builder and property developer as on one tax return he labelled himself as such, although Ives denied these claims as he had only seen through one development himself.
HMRC said the witness statements had ‘little weight’ as evidence as this was 'effectively provided to them’ and anyone who did not provide evidence in person should be disregarded as it was ‘not particularly specific’.
The tribunal applied the test of 'residence' finding that 'all three properties were actively occupied by Mr Ives as his residence', adding that he 'intended that occupation to be permanent. His occupation of these properties was not intended to be fleeting or transitory. It turned out to be relatively short term, but that was because of the way his family circumstances changed'.
Ruling in favour of the appellant, the FTT stated: ‘Mr Ives moved into the properties on his evidence with a view to making them his home in the long term. On his evidence furniture was moved into the properties as soon as this could be done and the properties were then enjoyed as homes, albeit not for a very long period.
‘The evidence of the witnesses about when furniture was moved into the various houses and when they were enjoyed as homes is not specific as to dates, but a number of witnesses do speak of going to the properties for social purposes and finding them furnished.’
The FTT found that ‘the profits arising as a result of Mr Ives’ dealing with Ringmer, Wandsworth and Crondance were not trading profits; they were investment gains which attract PPR’.
The tribunal allowed the appeal regarding the closure notices on the property sales but a side issue on £8,436 in income tax and penalties on a rental property was upheld.
The judge ruled that this amount should be agreed between HMRC and Ives.
HMRC has been contacted for comment.