DECISION
Introduction
1. This
appeal concerns payments the appellant made towards a loan which became
irrecoverable and HMRC’s refusals to allow his claims for:
(1)
loss relief for loans to traders under s253 TCGA 1992
(2)
negligible value under s24 of TCGA 1992; and also against HMRC’s
refusal to
(3)
allow any loss relief to be set against the appellant’s general income
under s574 Income and Corporation Taxes Act 1988 (“ICTA 1988”).
2. The
appellant was a director of a property trading company (Efrussy Trading Company
Limited (“Efrussy”)). He maintains he fulfils the relevant conditions for the
loss relief because the payments were made under a guarantee given to the bank
which had lent money to Efrussy or because they were repayments of a loan to
the company which became irrecoverable or was of negligible value.
3. HMRC argue
the loss relief is not available because the loan was irrecoverable at the outset
and therefore did not become irrecoverable. Further the statutory
condition that the payments were made under the guarantee was not met there
being no evidence that repayment was demanded by the bank under the guarantee. Even
if loss relief on the payments is allowed for capital gains tax purposes HMRC
disagree that there is any basis for setting this amount against general
income.
Evidence
4. We were
given a bundle of documents produced by HMRC containing correspondence between
HMRC and the appellant, including enclosures to the appellant’s letters during
the period 31 March 1994 to 29 June 2010. This included:
(1)
Advice of monthly interest due and payable on 31 October 2010 for
£933.45 from Westpac to the appellant at his home address.
(2)
Letter relating to a Facility for £204,000 dated 28 June 1989, 24
September 1990 and 30 April 1991 (referring to an earlier Facility Letter of 1
April 1987 and extension letter of 23 May 1988). All letters were addressed to
Efrussy. (The signature sections of the letters were unsigned but mentioned the
appellant as the guarantor of the loans).
(3)
Redacted correspondence the appellant had sent to HMRC in relation to a
claim he had made on behalf of a client and which he maintained was similar to
his own and which had been accepted by HMRC.
5. At the
hearing we also received 2 bundles of correspondence from the appellant. These
had not been disclosed to HMRC but HMRC was given the opportunity to review
these and did not object to the Tribunal considering them.
6. The
further bundles included:
(1)
correspondence between Efrussy and Midland Bank PLC dated 6 July 1987 and
8 and 9 October 1987.
(2)
correspondence between Efrussy and Westpac Banking Corporation dated 18
April 1994, and 2 letters dated 16 June 1994.
(3)
letters from the appellant to his property solicitor, Mr Allan Hooper
dated 11 July 1994 and 9 August 1994.
7. In
addition we heard oral evidence from Mr Goldsmith which was subject to
cross-examination.
Law
8. Section
2(3) TCGA 1992
“2 Persons and gains chargeable to capital gains
tax, and allowable losses
(1) …
(2) …
(3) Except as provided by Section 62, an allowable
loss accruing in a year of assessment shall not be allowable as a deduction
from chargeable gains accruing in any earlier year of assessment, and relief
shall not be given under this Act more than once in respect of any loss or part
of a loss, and shall not be given under this Act if and so far as relief has
been or may be given in respect of it under the Income Tax Acts.
…”
9. Section 24
TCGA 1992
24 Disposals where assets lost or destroyed, or
become of negligible value
(1)…
(2) Where a negligible value claim is made:
(a) this Act shall apply as if the claimant had
sold, and immediately reacquired, the asset at the time of the claim or
(subject to paragraphs (b) and (c) below) at any earlier time specified in the
claim, for a consideration of an amount equal to the value specified in the
claim.
(b) An earlier time may be specified in the claim
if:
(i) the claimant owned the asset at the earlier
time; and
(ii) the asset had become of negligible value at
the earlier time; and either
(iii) for capital gains tax purposes the earlier
time is not more than two years before the beginning of the year of assessment
in which the claim is made; or…
10. Section 253 TCGA 1992
253 Relief for loans to traders
(1) In this section “a qualifying loan” means a loan
in the case of which—
(a) the money lent is used by the borrower wholly
for the purposes of a trade carried on by him, not being a trade which consists
of or includes the lending of money…
(2) …
(3) Where a person who has made a qualifying loan
makes a claim and at that time —
(a) any outstanding amount of the principal of the
loan has become irrecoverable…
then… this Act shall have effect as if an allowable
loss equal to that amount had accrued to the claimant at the time of the claim
or (subject to subsection (3A) below) any earlier time specified in the claim.
(3A) For the purposes of subsection (3) above, an
earlier time may be specified in the claim if:
(a) the amount to which that subsection applies was
also irrecoverable at the earlier time; and either
(b) for capital gains tax purposes the earlier time
falls not more than two years before the beginning of the year of assessment in
which the claim is made; or…
(4) Where a person who has guaranteed the repayment
of a loan which is… a qualifying loan makes a claim and at that time—
(a) any outstanding amount of, or of interest in
respect of, the principal of the loan has become irrecoverable from the
borrower, and
(b) the claimant has made a payment under the
guarantee (whether to the lender or a co-guarantor) in respect of that amount,
and…
this Act shall have effect as if an allowable loss
had accrued to the claimant when the payment was made; and the loss shall be
equal to the payment made by him in respect of the amount mentioned in
paragraph (a) above less any contribution payable to him by any co-guarantor in
respect of the payment so made.
…
11. Section 574 ICTA 1988
574 Relief for individuals
(1) Where an individual who has subscribed for
shares in a qualifying trading company incurs an allowable loss (for capital
gains tax purposes) on the disposal of the shares in any year of assessment, he
may, by notice given within twelve months from the 31st January next following
that year, make a claim for relief from income tax on—
(a) so much of his income for that year as is equal
to the amount of the loss or, where it is less than that amount, the whole of
that income; or
(b) so much of his income for the last preceding
year as is equal to that amount or, where it is less than that amount, the
whole of that income;
but relief shall not be given for the loss or the
same part of the loss both under paragraph (a) and under paragraph (b) above.
Where such relief is given in respect of the loss or
any part of it, no deduction shall be made in respect of the loss or (as the
case may be) that part under the 1992 Act.
(2) Any relief claimed under paragraph (a) of
subsection (1) above in respect of any income shall be given in priority to any
relief claimed in respect of that income under paragraph (b) of that
subsection; and any relief claimed under either paragraph in respect of any
income shall be given in priority to any relief claimed in respect of that
income under section 380 or 381.
(3) For the purposes of this section—
(a) an individual subscribes for shares if they are
issued to him by the company in consideration of money or money's worth; and
(b) an individual shall be treated as having
subscribed for shares if his spouse did so and transferred them to him by a
transaction inter vivos.
12. We were also referred to the
following cases:
Harper v HMRC Commissioners [2009] UKFTT 382 (TC)
Robson v Mitchell (Inspector of Taxes) [2005] EWCA Civ 585; [2005] STC 893
Facts
13. From the evidence
before us we found the following:
(1)
Efrussy was registered at Companies House on 1 July 1985.
(2)
The appellant was a director of Efrussy.
(3)
Westpac Banking Corporation (“Westpac”) made loans to Efrussy. These
included loan facilities which were available in the period 1 April 1987 to 16
June 1994.
(4)
The appellant was a guarantor of the Westpac loans.
(5)
The loans were used to acquire two flats in June 1987 for £120,000 each with
a view to selling them on at a profit. Offers had been received respectively
for £165,000 and £182,500 and that it was hoped that exchange would take place
by 21 July 1987.
(6)
Efrussy sold one flat and received rent from the other.
(7)
Rental income was received into the business bank account used for the
appellant’s accountancy practice.
|
Year Ended
|
Rent received
|
|
31/03/1988
|
£0
|
|
31//3/1989
|
£1,223.29
|
|
31/03/1990
|
£15,836.59
|
|
31/03/1991
|
£8,334.31
|
|
31/03/1992
|
£1,513.98
|
|
31/03/1993
|
£7,237.33
|
|
|
Total: £34,155.50
|
(8)
Interest was paid in respect of the loans from Westpac to Efrussy. The
interest was in the following amounts in the period 1987-88 to 1992-3:
|
Year Ended
|
Interest paid
|
|
31/03/1988
|
£19,862.00
|
|
31//3/1989
|
£27,467.35
|
|
31/03/1990
|
£42,088.24
|
|
31/03/1991
|
£36,171.61
|
|
31/03/1992
|
£6,495.18
|
|
31/03/1993
|
£1,750.00
|
|
|
Total: £133,834.38
|
(9)
The interest payments exceeded the rents received for every accounting
period that the company existed. The shortfall was made up by the appellant.
The majority of the interest payments were paid directly by the appellant to
the bank.
(10)
The amounts owed by Efrussy to the appellant resulted in credits to the
appellant’s Director’s Account with Efrussy.
(11)
On 31 March 1994 the appellant wrote to HMRC to make a claim to offset
the payments he had made in respect of interest against other income.
(12)
On 18 April 1994 Westpac wrote to the appellant. The letter explained
that in exchange for the appellant continuing to assist with the Westpac’s
strategy of selling the remaining flat to an as yet undisclosed party, Westpac
would not pursue the appellant’s personal guarantee with regard to any
shortfall arising.
(13)
On 16 June 1994 Westpac wrote to the Directors of Efrussy on a letter
headed with the flat’s address and “Legal Mortgage Dated 26 June 1987” to
demand immediate payment of the outstanding balance of the sum due
(£155,503.86). The letter stated that
“in the event of our not receiving such repayment we
shall proceed to exercise our rights under any security we may hold.”
(14)
On the same date a letter headed with the address “Facility Letters
dated 1 April 1987 and 5 June 1987 subsequently amended on 23 May 1988, 28 June
1989 and 2 September 1991” gave notice of events of default pursuant to those
facility letters. The events of default were stated as being non-payment of
interest and capital repayment instalments. The facility was declared to be
cancelled and the principal together with interest and other amounts due
immediately due and payable.
(15)
On 11 July 1994 in a letter to his solicitor the appellant refers to
Westpac not having exchanged contracts on the property yet. The appellant asked
the solicitor to hand over the keys in return for a signed agreement being
handed over from Westpac via their solicitor.
(16)
In a letter dated 9 August 1994 from the appellant to his solicitor. The
letter states:
“..the company only had one asset, the flat which
had substantial negative equity after taking off the debt to Westpac Banking
Coproration…I would also make the point that I paid the last amounts due
personally but have no intention of doing so again.”
(17)
Efrussy was dissolved on 21 March 1995
(18)
HMRC refused the loss relief claim on 19 April 2006.
(19)
The appellant’s appeal was on 28 March 2007 was accepted as a late
appeal by HMRC.
Appellant’s arguments
14. In relation to the refusal
of loss relief under s253(4) TCGA 1992 the bank loans were not irrecoverable
from the outset and the payments which had been made had been made under the
guarantee. The fact the appellant did not have letters of demand from the
lender was irrelevant. It was enough to show the appellant was the guarantor
and that payments had been made. There could be no other reason why the payments
had been made.
15. The loss relief should be
available to be set off against general income. The appellant who was a
chartered accountant had, on behalf of a client, made a negligible value claim
involving a directors loan account for a property trading company and that had
been accepted by HMRC. HMRC’s treatment of the client’s claim and the
appellant’s claim was inconsistent.
16. HMRC had an “equitable
jurisdiction” to look at matters in the round and should exercise this to allow
the appellant’s claim.
Respondent’s arguments
17. The appellant’s claim under
s253(4) TCGA 1992 fails because
(1)
There was no evidence the appellant was called upon in his personal
capacity by the lender to make payments as guarantor
(2)
The loan was irrecoverable at the outset, it was not a loan which had become
irrecoverable.
(3)
The case of Robson supports the view that no relief is due.
18. In relation to setting any
loss relief against the appellant’s general income there was no statutory basis
for this. Section 574 ICTA 1988 only applied to disposals of shares in a
qualifying trading company so whether there was a loss relief claim under s253
TCGA 1992 or a negligible value claim under s24 TCGA 1992 there was no route
to establishing that the loss could be set against general income.
19. As for the similar claim the
appellant maintained he had successfully brought on behalf of a client it
appeared the client’s circumstances were distinguishable as there appeared to
be an issue over payments for breach of a shareholder agreement and
consequential damage to shareholders. In any case if HMRC had given an incorrect
decision in relation to that matter that did not bind it to also give appellant
an incorrect decision in this matter.
20. In advance of the hearing
HMRC argued that no evidence had been supplied to show that Efrussy had
satisfied the criteria laid out in Schedule 6 Paragraph 1 TCGA 1992 and in
particular because the business appeared to receive rental income, per s15(1)
and s18(3) ICTA 1988 this income as Schedule A income was not profits of a trade.
However upon reviewing the documents produced by the appellant at the hearing
which indicated the properties had been purchased with a view to resale rather
than rental Mr O’Reilly was prepared to accept that Efrussy could be classified
as a trading company and so this contention was dropped.
Discussion
Loss relief claim for payments made under guarantee of
a loan which became irrecoverable ( s253(4) TCGA 1992)
Were the outstanding amounts irrecoverable from the
outset?
21. The first issue in contention
is whether as HMRC argue s253(4) cannot apply because the loan did not become
irrecoverable.
22. HMRC’s argument as to why the
loan was always irrecoverable rests largely on a statement the appellant had
made in correspondence with HMRC. In a letter dated 24 February 2005 from HMRC to
the appellant HMRC pointed out that a claim to relief could only be made after
the loan had become irrecoverable and as the appellant had continued making
payments until at least 31 March 1993 the loan could only have become
irrecoverable after that date. In a letter dated 28 February 2005 the appellant
had replied:
“In fact, the true situation was that the loan was
in effect irrecoverable as soon as the payments were made…there was not enough
income coming into the company for the payments to be made to the bank that
provided the loans. I had to make these payments almost from day one in the
knowledge that the money would never be paid back…Therefore my contention would
be that the relief should be given each year that the payments were made on the
basis that they would never be recovered.”
23. The appellant was not able
to throw any light on his statement at the hearing but questioned the relevance
of the statement as the real issue was whether as a matter of fact the interest
was irrecoverable.
24. Whether the interest was
recoverable to begin with but then became irrecoverable is, we would agree, a
matter of objective fact. We do not agree that the appellant’s statements are irrelevant;
they are in our view a factor which it is right to take into account but also
one whose weight we should consider. In view of the context in which the
appellant gave his reply, namely answering a letter which was effectively
alleging the appellant’s claim had been premature (rather than a letter which
required an answer to an allegation that the loan was never recoverable in the
first place), and the fact that the appellant’s letter was written close to 18
years after the first payments were actually made, we find the statement to be
of limited weight and certainly not conclusive of the loans being irrecoverable
from the outset.
25. The documentary evidence put
before us showed that in 1987 a commercial lender had been prepared to lend
money to a company which had bought two properties and which had offers on the
table for the resale of the property at a profit. That does not indicate to us
that outstanding amounts on those loans would be irrecoverable as a matter of
objective fact at the outset.
26. In fact the main asset of
the company, a property bringing in rental income and carrying with it the hope
that it could be sold at a profit if the market turned was not disposed of
until 1994. In our view it was only when it became clear the property would be
disposed of at a loss that sums paid in respect of interest on the loans would
be known to be irrecoverable. We therefore do not agree with HMRC’s submission
that the loss relief claim should be denied on the ground that the outstanding
amount had not become irrecoverable.
Were the payments in respect of the outstanding amounts made “under the
guarantee”?
Relevance of evidence on whether guarantor called to pay
27. It was not disputed that
the appellant was a guarantor the loans. What was in dispute was whether the
payments were made “under the guarantee” for the purposes of s253(4)(b) TCGA
1992. HMRC point to the lack of any evidence that the appellant made the
payments in his capacity as guarantor and in particular point to lack of any
evidence the appellant was called upon by the lender to make the payments as
the guarantor of those payments. The appellant had not been able to find any
further documents relating to the guarantee and could not recall whether
demands had been made. We were asked to infer from the fact that the appellant
was a guarantor and the payments had been made that either the appellant must
have received demands, or if he had not, then there was no other explanation
for him having made the payments apart from them being made under the
guarantee.
28. We find it helpful to return
to the words of the legislation which require that the payments are made “under
the guarantee” rather than to couch the question in terms of the capacity in
which the person making the payment was acting. While the presence of evidence
that a guarantor has made a payment pursuant to a call from the creditor to do
so would make it very easy to be satisfied that a payment was made “under the
guarantee” we do not think the absence of evidence that such a call was made is
necessarily conclusive.
29. We were not referred by the
parties to any authorities on the point but the Tribunal notes that various
relevant authorities are set out in Law of Guarantees 6th Ed. Andrews; Millett.
The question of whether a demand needs to be made will depend on the contract
and how that is construed. In considering whether a creditor may enforce
liability against a guarantor without a demand Dillon LJ in M.S Fashions
Ltd. v B.C.C.I [1993] Ch. 425 at 447 quoted from a judgment of Atkin LJ in N.
Joachimson v Swiss Bank Corporation [1921] 3 K.B 110,129 which said:
“The question appears to me to be in every case, did
the parties in fact intend to make the demand a term of the contract?...”
30. Further there is authority
to suggest that where there are provisions in a guarantee that the creditors
make a demand on the guarantor these can be waived by the guarantor who is not
bound to wait for a demand before paying. (See Stimpson v Smith [1999]
Ch. 340 per Peter Gibson L.J. at [349]). There was no evidence before us
which suggested that the appellant waived any such requirement but the point
serves to emphasise that the mere lack of evidence of a demand is not in and of
itself a solid foundation for refusing a s253(4) claim.
Did the lender call for payment under the guarantee / was such a call
required?
31. In terms of the evidence
before us while we had before us unsigned copies of later Facility letters
between Westpac and Erfussy which referred to terms and conditions as set out
in earlier facility letters dated 1 April 1987 and 23 May 1988 we did not have
those earlier letters and the terms and conditions in them.
32. We also noted a copy of a
document from Westpac entitled “Advice of monthly interest due and payable on
31/10/87” which had been addressed to him personally and not the directors of
Erfussy at Erfussy’s company’s address (which was different to the personal
address). The document simply states the amount due and the date for payment. The
appellant had provided this in response to a request from HMRC for evidence that
he had paid the interest amounts under the guarantee.
33. In the absence of evidence
speaking to the context in which this document was produced by Westpac we are
not persuaded that this document was a demand or further that this type of
document was generated for all of the payments in issue. It makes no reference
to the default by Erfrussy or to the appellant’s guarantee obligations. It also
contrasts in its informal nature with the correspondence shown to us from
Westpac to Erfussy in April and June 1994 which is set out in more formal terms
and mentions specific events of default and makes explicit demands.
34. On the other hand as
discussed above the absence of demands does not establish the payments were not
made under the guarantee. As there is insufficient evidence of the terms and
conditions of the guarantee were were unable to consider whether the guarantee
required a demand to be given. We do not think, therefore, too much store can
be placed on the lack of evidence of demands to pay under the guarantee.
What else could the payments be made for if not under the guarantee?
35. Given we are not persuaded that
demands were made but equally not persuaded that the terms of the guarantee
required there to be a demand, we must then consider whether it is to be
inferred, as the appellant invites us to do, that the mere fact that payments
were made when the appellant was a guarantor is enough to establish that those
payments were made “under the guarantee”.
36. Even though it is possible
from what is stated above that a payment may be made under the guarantee
(depending on the terms of the guarantee and how those are construed) even if
the creditor has not issued a demand we do not agree it follows that any
payment made by a guarantor will fall within the term “made under the
guarantee”. That will need to be determined according to the particular
circumstances of the payment in question. It may be that for whatever reason the
guarantor wishes to forestall their guarantee obligations from arising in the
first place by enabling the debtor to meet its obligations to the creditor. In
that situation we do not think it can be said that the payments are made “under
the guarantee”. It might be that they are payments that would not otherwise be
made if it were not for the guarantee but that does not in our view mean they
are made under the guarantee.
37. In contrast the payment
might be made only once the debtor has defaulted on its obligation to pay and
the guarantor’s liability is thereby triggered (assuming there are no other
relevant pre-conditions). Here there clearly is scope to argue that the payment
is “made under the guarantee”.
38. In assessing which side of
the line the appellant’s payments fall on we are hampered by there being no
evidence before us on the timing of Erfrussy’s debt obligations as compared
with the timing of the payments made by the appellant or there being any evidence
that Erfrussy repeatedly defaulted on its payments to Westpac.
39. We think it is for the
appellant to establish that the payments were made under the guarantee but
there is inadequate evidence before us to reach that conclusion. We accept the
appellant may genuinely have been motivated to make the payment in the
knowledge that if there was a shortfall he would be pursued for it under the
guarantee but this cannot answer the test posed in the legislation which we
think is an objective one. We also note that the appellant was a director of
Erfrussy. As such this may have been another reason why he may have been
incentivised not to let the company fall repeatedly into default with its
lender.
Relief under s253(3) TCGA 1992 for outstanding amount of principal on
irrecoverable loan
40. Loss relief under s253 TCGA
1992 is also available under paragraph 3 of that section where a person who has
made a qualifying loan makes a claim and at that time any outstanding amount of
the principal of the loan has become irrecoverable.
41. While we were not specifically
addressed on these provisions at the hearing we think we must also consider
relief under this provision as we are satisfied from reviewing the appellant’s
claim and the subsequent correspondence between the appellant and HMRC that a
claim was also being made under this provision in relation to loans the
appellant had made to Efrussy through his loan account with the company. Although
HMRC had in a letter dated 8 February 2005 indicated that the payments might
qualify for loss relief (as against future capital gains only) HMRC
subsequently came to the view that the relief under s253(3) TCGA 1992 was not
available as the loans had not become irrecoverable but were
irrecoverable at the time they were made. HMRC’s view was based on the
statements made by the appellant in his letter of 28 February 2005 (discussed
above at [22]).
Loans from appellant to Efrussy and relief under s253(3) TCGA 1992
42. While it was not clear from
the evidence before us whether some or all of the payments of interest on the
Westpac loans were paid direct by the appellant to Westpac on Efrussy’s behalf,
or paid to Efrussy first and then on to Westpac either way we accept that the
payments amounted to there being a loan between the appellant and the company
which was reflected in the appellant’s directors loan account with the company.
43. The question arises as to
whether such a loan would fulfil the requirement that the money lent is used by
the borrower “wholly for the purposes of trade carried on by him”. We find that
this requirement is satisfied, the money paid by the appellant being wholly
used to pay for interest on a loan which was itself for the purposes of the
trade of Efrussy.
44. This is consistent with the
approach endorsed by the Court of Appeal in Robson, a case which
considered the “wholly for the purposes of trade” test in s253(1) TCGA 1992 where
Neuberger LJ (as he then was) at [22] [2005] STC 893 endorsed the following
arguments put forward by the Revenue:
“[w]here money lent is used to repay an existing
indebtedness, the purpose served by the use of that money is characterised by
the purpose of the existing indebtedness. This interpretation ensures that
where money lent has actually been used for a wholly trading purpose, the
taxpayer is not precluded from relief where he simply wishes to refinance that
loan. It also ensures that a refinancing exercise does not convert a
non-qualifying loan into a qualifying loan”
45. In relation to HMRC’s
argument that the payments toward the loan were irrecoverable from the outset
given what the appellant had stated in his letter of 28 February 2005 our views
as set out in para [24-26] above are relevant. We find the statements in that
letter to be of limited assistance in establishing whether the outstanding
amounts, in this case outstanding amount of principal on the appellant’s loan
to the company were recoverable at the time the loan was made. Although the
appellant, unlike Westpac was not a commercial lender and therefore might have
been more prone to making a loan which was irrecoverable the point remains that
until it became clear the remaining property of the company was going to be
sold at a loss we do not think it can be said that a claim under s253(3) TCGA
1992 fails on the grounds the amount was outstanding from the outset and
therefore did not become irrecoverable.
46. We therefore find that the
appellant should be entitled to his claim under s253(3) TCGA 1992 for
outstanding amounts of principal of the loans he made to Efrussy. As to the
quantum of the outstanding amounts it is our view that the outstanding amount
of principal of loans the appellant made to Efrussy is represented by the
shortfall between the interest payment the appellant made and the rental
payments he received as set out in paragraphs [13(7) and (8)].
47. Before moving on from the
issues on s253 TCGA 1992 we note that HMRC had in their submissions invited us
to reach a view that Robson assisted with their arguments that it was
right to refuse the s253 TCGA 1992 claim. At the hearing HMRC were not able to
elaborate further on the particular aspects of the case which assisted them and,
although we were grateful to Mr O’Reilly to have been referred to the case, it
being one of the few higher authorities on that provision, we were unable to
discern the reasons why the case supported HMRC’s position on s253 TCGA 1992.
Does s574 ICTA allow the appellant to use the loss relieved under s253 TCGA
1992 against his general income
48. While s574 ICTA 1988 does
indeed allow an individual’s losses for capital gains purposes to be set
against an individual’s income tax the provision clearly applies to losses on
the disposal of shares the individual has subscribed for in a qualifying
trading company. This provision does not provide any basis for the appellant
to use the loss relief he has obtained under s253 TCGA 1992 in respect of
outstanding principal on loan amounts for capital gains tax purposes as a
relief against his income tax.
Negligible value claim under s24 TCGA 1992 and use of relief against
general income
49. We do not see how even if
were argued that the loan account, being an asset in the hands of the
appellant, became of negligible value, that this would support the claim that
the loss obtained under s24 TCGA 1992 for capital gains purposes could be used
as a relief against the appellant’s general income. As set above at [49],
although s574 ICTA does enable relief from income tax this only applies to
losses on the disposal of shares the individual has subscribed for. We have no
evidence before us in relation to whether the appellant was issued with shares,
their value and in any case no indication that there has been a claim, refusal
or appeal which would give us jurisdiction to consider the issue.
Relevance of HMRC granting relief sought to the
appellant’s client who was in similar circumstances
50. We were referred to redacted
correspondence in relation to a negligible value claim made by the appellant on
behalf of a client whose company was trading in property. Claims appear to have
been made both in relation to shares and in relation to a loan. Having reviewed
the correspondence while it appears a negligible value claim was accepted in
relation to the shares and a loss accepted in relation to the loan it is not
clear to what extent it was accepted the losses, in particular the losses on
the loan could be set against general income.
51. In any case even if the
correspondence was clear in showing that HMRC had accepted a negligible value
claim on a loan, and that the loan was similar to the loan the appellant had
made to Efrussy, HMRC’s acceptance of the claim would have been wrong in law
given the limitation of s574 ICTA 1988 to shares.
52. This Tribunal must determine
the appeal according to the relevant law, and we can see no authority relevant
to appeals against refusals of claims such as the ones before us which would
bind the Tribunal to apply and perpetuate a decision by HMRC to accept the
claim on the basis a similar claim had been erroneously accepted for another
taxpayer. If there has been inconsistent treatment it is no doubt
uncontroversial that this is unsatisfactory but the taxpayer’s remedy lies
through other avenues such as complaints procedures and actions for judicial
review.
Equitable liability / jurisdiction
53. The appellant, following up
requests he had made in correspondence with HMRC, argued that it should be
possible for the relief he was seeking to be granted on the basis that HMRC had
an equitable jurisdiction to look at a taxpayer’s affairs and the way they had
been dealt with in the round.
54. There was no legislation put
before the Tribunal on the point but the appellant helpfully drew the
Tribunal’s attention to his recollection that this approach, which was
something he had encountered in his practice, had recently been codified.
55. Upon further research
subsequent to the hearing it appears to the Tribunal that the appellant may
have been referring to provisions in paragraph 3A of Schedule 1AB of the Taxes
Management Act 1970 and which were inserted by the Enactment of Extra-Statutory
Concessions Order SI 2011/1037 with effect from 1 April 2011. These enable a
person to claim for relief for repayment or discharge of tax they are liable
to pay which they believe is not due as long as various conditions are met
(including whether, in the opinion of HMRC, it would be unconscionable for HMRC
to recover the amount).
56. In terms of the appeal
before the Tribunal, the Tribunal’s authority is limited to making
determinations according to the law and there is no legal provision enabling
the Tribunal to alter the conclusions it has come to according to the law on
any kind of equitable jurisdiction in the manner suggested by the appellant.
57. To the extent the appellant
had in mind the statutory provisions referred to above it is not clear to us
that HMRC have made any decision or given any opinion on their applicability,
and what, if any, jurisdiction the Tribunal has in relation to such claims. The
appellant has raised the issue of whether HMRC could exercise its “equitable
jurisdiction” in correspondence for instance in his letter 14 April 2010 to
HMRC. HMRC had replied that they were not aware of this term. It appears to the
Tribunal that HMRC ought to clarify whether the appellant had in mind these
provisions or similar extra-statutory concession when he made his request and
if so consider the matter further and provide him with a response.
Conclusion
58. The appellant’s appeal
against the refusal of his claim for loss relief of under Section 253(3) TCGA
1992 is allowed in the amount of £99,678.88 being the shortfall between the
rent received and the interest payments made.
59. The appellant’s appeal
against HMRC’s refusal to allow relief against his general income is dismissed.
60. 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.
SWAMI
RAGHAVAN
TRIBUNAL JUDGE
RELEASE DATE: 15 August 2012
