First-tier Tribunal (Tax)

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URL: http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01206.html
Cite as: [2011] WTLR 1817, [2011] UKFTT 346 (TC)

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Mrs Yvonne Lawson v Revenue & Customs [2011] UKFTT 346 (TC) (25 May 2011)
INCOME TAX/CORPORATION TAX
Assessment/self-assessment

[2011] UKFTT 346 (TC)

TC01206

Appeal number: TC/2009/14139

Closure notice and amendment to self assessment – capital gains tax liability – whether correctly assessable in full on Appellant – appeal allowed

FIRST-TIER TRIBUNAL

TAX

MRS YVONNE LAWSON Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Ms J. Blewitt (Judge)

Mr R. D. Corke (Member)

Sitting in public at Birmingham on 15 April 2011

Mrs Lawson, the Appellant appeared unrepresented

Mrs Robinson, Presenting Officer instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

DECISION

1. By Notice of Appeal dated 14 September 2009 the Appellant appealed against a closure notice and amendment to self assessment for the year ended 5 April 2006 in the amount of £5,781.44, including capital gains tax liability in the sum of £5,777.60.

Background Facts

2. The Appellant was not originally within the Self Assessment system due to the fact that her sole income was from PAYE employment.

3. HMRC identified that the Appellant was in receipt of rental income and may have been liable to capital gains tax in respect of a property. As a result, a tax return was issued for the year ended 5 April 2006 on 21 July 2008.

4. The return was received by HMRC on 22 October 2008 and showed employment income, income from property and a taxable capital gain (after the annual exempt amount) of £7,442.59. The rent shown was £2,000 and after expenses the net income from renting was £32.32 which was covered by losses brought forward of £2,690.83. The Appellant’s agent, Mr Rajani of Rajani & Co, provided a supporting calculation showing that the taxable capital gain included a double claim for the annual exempt amount on the basis that the Appellant’s husband, Mr Lawson, was entitled to a half share of the gain.

5. The capital gain in question arose from a property, 141 Southampton Road, Northampton which was purchased on 26 February 2002 for the sum of £78,000. This property was sold on 1 August 2005 for £116,500.

6. HMRC opened an enquiry into the return under Section 9A Taxes Management Act (“TMA”) 1970 on 8 December 2008. On 14 May 2009 the enquiry was closed by notice under Section 28A (1) and (2) TMA 1970. HMRC concluded that the Appellant was the sole legal and beneficial owner of the property at Southampton Road and consequently the whole of the gain is assessable on her.

7. By letter dated 3 July 2009 the Appellant formally requested an independent review of HMRC’s decision.

8. The review was completed and notified to the Appellant on 13 August 2009. The Review Officer upheld HMRC’s decision of 14 May 2009 for the following reasons:

(a) The legal title of the property was in the Appellant’s name and in the absence of any evidence to the contrary, the legal owner is usually the beneficial owner;

(b) Rental income received from the property was paid into the Appellant’s bank account;

(c) The full amount of both income and expenditure in relation to the letting of the property was included in the Appellant’s tax return and had the property been jointly owned then the rental income should be declared in equal shares;

(d) The proceeds from the sale of the property were paid into the Appellant’s bank account;

(e) On 20^th October 2008, the Appellant’s accountant advised HMRC that Mr Lawson had omitted to include his share of the gain in his 2005/2006 tax return. HMRC’s response was one of surprise and queried why, if as contended by the Appellant Mr Lawson held a beneficial interest in the property, the gain was omitted;

(f) Bank statements of Mr Lawson provided to HMRC were deemed insufficient to prove that payments of £378 (which were transferred regularly from his account into that of the Appellant) were made in order to satisfy the mortgage payments at Southampton Road.

Issue

9. The Appellant did not dispute that she was the legal owner of the property. HMRC accepted that the legal owner of an asset is not necessarily its beneficial owner and that it is beneficial ownership which the tax principally follows.

10. The issue for the Tribunal to determine was whether, as contended by the Appellant, Mr Lawson was also a beneficial owner of the property.

Evidence

11. We were provided with correspondence between HMRC and the Appellant’s agent which we considered carefully. The Appellant also gave oral evidence in which she confirmed and clarified a number of the points raised in correspondence.

12. The Appellant explained that the property was bought primarily as a residence for her daughter who was attending college and working part-time in Northampton. Mrs Lawson stated that the money used to purchase the property had come from a combination of inheritance she had received from her mother as a beneficiary of the will and family savings. The inheritance was combined with proceeds of an endowment policy in Mr Lawson’s name which was then used to purchase the property at Southampton Road.

13. Mrs Lawson clarified that the family home (where she and her husband reside) is mortgaged in her husband’s name although she, the Appellant, had always paid the mortgage. Due to the fact that Mr Lawson already had a mortgage, the couple were advised to apply for a mortgage in the Appellant’s sole name in order to purchase the property at Southampton Road. We accepted the Appellant’s evidence that when the property at Southampton Road was purchased, the couple agreed that Mr Lawson would pay towards the mortgage on Southampton Road and the Appellant would continue to pay the mortgage on the family home.

14. The property at Southampton Road was sold as a result of a tragic incident at the house, which prompted the Appellant and her husband to sell the property; the proceeds of which were used to pay off the mortgages remaining on the family home and Southampton Road and reinvest in another property.

15. The Appellant stated that her daughter would pay towards the bills but that the contributions varied and were dependent on her daughter’s financial state at the time. The Appellant confirmed that the mortgage payments were in the region of £400 per month, and that she and Mr Lawson had calculated the amount that Mr Lawson was able to afford to contribute towards the mortgage payments and bills.

16. The Appellant confirmed that this arrangement was still ongoing; Mr Lawson continues to pay towards the second property of which Mrs Lawson is the legal owner. The Appellant stated that having been married for over 20 years, the properties are considered by the couple to belong to each in equal shares; by way of example the Appellant stated that the legal title of the premises from which her husband practices is held by Mr Lawson and that the mortgage had been paid by the Appellant on the basis that it is jointly owned. The Appellant explained that her husband is self-employed and has only one account. Consequently all of the couple’s money, including contributions from Mr Lawson towards mortgage payments and joint savings, are put into the Appellant’s account.

17. In cross examination the Appellant accepted that the only statements provided in support of her contention were those of Mr Lawson showing regular payments being transferred into the account of “Lawson Y M Loan a/c.” The Appellant clarified that this is the mortgage account. The Appellant explained that documents pertaining to the mortgage on the property at Southampton Road could not be produced as the documents no longer existed at the time that the issue relating to tax arose.

18. The Appellant stated that the amount contributed by her husband towards the mortgage on Southampton road was between 80% and 90% of the mortgage and this was the extent of what could be afforded.