[2013] UKFTT 84 (TC)
TC02502
Appeal number: TC/2012/06127
and 06128
CAPITAL GAINS TAX – whether
the Appellants disposed of property in 2001 or 2007 – held: disposal by
appellants in 2007 - whether Appellants entitled to roll-over relief under
section 152 TCGA or hold-over relief under section 165 TCGA - held: neither
relief available- appeals dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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BIPIN MANGALBHAI
PATEL
RAJAN BIPIN
PATEL
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Appellants
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE GUY BRANNAN
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RICHARD THOMAS
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Sitting in public at Bedford Square , London on 11 January 20013
The Appellants did not appear
and were not represented
Alan Hall, Presenting Officer,
for the Respondents
© CROWN COPYRIGHT
2013
DECISION
Introduction
1.
These appeals concern the date of the disposal for the purposes of
capital gains tax ("CGT") of a share in the freehold interest and goodwill
in a property called Clackclose House ("the property") by the
appellants (Mr and Mrs Patel) and whether they are entitled to roll-over or
hold-over relief under, respectively, sections 152 and 165 Taxation of
Chargeable Gains Act 1992 ("TCGA").
2.
The appellants did not appear and were not represented at the hearing.
By a letter dated 4 January 2013 sent by the appellant's accountants to the
tribunal, we were informed that neither appellant nor any of their
representatives would attend the hearing but that they wished the tribunal to
consider matters in their absence. Accordingly, being satisfied that the
appellants had been notified of the hearing, we determined that it would be in
the interests of justice to proceed with the hearing.
The facts
3.
We find the following facts.
4.
The property, a residential/nursing home, was acquired by the
appellants, Mr Patel's brother, his wife and a company called Cashdraft Limited
("Cashdraft") in January 1989. Cashdraft acquired a 60% interest and
each of the other parties acquired a 10% interest. The price paid was
£685,000. The price was apportioned as follows:
Freehold £575,000
Goodwill £ 90,000
Fixtures and fittings £ 20,000
Total £685,000
5.
The property was run as a residential/ care home business carried on by a
partnership called Clackclose House. The partners were the appellants, Mr
Patel's brother and his wife. The partnership commenced trading and 24 January
1989. Cashdraft was not a partner and we had no information about the
arrangements between Cashdraft and the partnership.
6.
On 31 March 2000 Mr Patel left the partnership. Mrs Patel left the
partnership on 5 April 2000. The appellants' names did not appear on the
partnership tax returns for the year beginning 6 April 2000 or any later year.
Moreover, the appellants did not declare partnership income from Clackclose
House in their returns for 2000-2001 and subsequent years.
7.
Mr A B Patel, the son of the appellants, joined the partnership on 6
April 2001.
8.
Mr Patel's brother died on 23 July 2003.
9.
From 24 July 2003 to 5 October 2007, the partners in the partnership
consisted of the widow of Mr Patel's brother and Mr A B Patel.
10.
On 5 October 2007, the partnership ceased trading and the property was
sold to an unconnected third party. The consideration for the sale was
£835,000, which was apportioned as follows:
Freehold £760,000
Goodwill £ 50,000
Fixtures and fittings £ 25,000
Total £835,000
11.
Twenty percent of the consideration in respect of the sale was paid directly
to the appellants, who were still shown on the register of title as co-owners
of the property. The appellants' accountants assert, as we understand it, that
this was because the appellants had given their son a deposit of £50,000 in
respect of the purchase of a house and had been paying his monthly mortgage
instalments of £3000 per month since August 2006. Furthermore, according to
the accountants, the appellants had, one month before the sale of the property,
helped to finance the son's 50% share of the £752,944 purchase price of a shop
in Much Hadham, Hertfordshire. No evidence was produced to substantiate these
assertions.
12.
In the tax year 2007 – 2008, Mr A B Patel declared a gain on the
disposal of the property in his tax return. The appellants did not declare a
gain in their tax returns for that tax year.
13.
The appellants' accountants argued that the appellants had disposed of
their beneficial interest in the property to Mr A B Patel on 6 April 2001.
Therefore, they argued, any gain in respect of the disposal of the property on
5 October 2007 was chargeable upon him and not upon the appellants.
14.
In the alternative, the accountants argued that, if the gain was
assessable on the appellants, then they were entitled to claim roll-over relief
under section 152 TCGA or alternatively hold-over relief under section 165
TCGA.
15.
The appellants claimed roll-over relief in August 2010 under section 152
TCGA on the basis that the disposal proceeds could be rolled-over against the
purchase in 2009 of another property, 2 Jotmans Lane, and that the appellants
were trading but did not take any profits from the partnership in the final
years. In the alternative, the appellants made a claim for hold-over relief
under section 165 TCGA on 21 February 2011 on the basis that the appellants' beneficial
interest in the property was transferred to Mr A B Patel on 6 April 2001.
16.
The appellants produced no evidence to substantiate their claim that
they had transferred their interest in the property to their son Mr A B Patel
on 6 April 2001, save for the assertions made in their accountants’ letters to
HMRC.
17.
Assessments to capital gains tax were raised against Mr Patel on 1 March
2012 in the amount of £6,137 and against Mrs Patel on the same date in the
amount of £6,320.20. The appellants have appealed against these assessments.
Relevant statutory provisions
18.
Section 152 TCGA provides:
(1) If the consideration which a person carrying on
a trade obtains for the disposal of, or of his interest in, assets (“the old
assets”) used, and used only, for the purposes of the trade throughout the
period of ownership is applied by him in acquiring other assets, or an interest
in other assets (“the new assets”) which on the acquisition are taken into use,
and used only, for the purposes of the trade, and the old assets and new assets
are within the classes of assets listed in section 155, then the person
carrying on the trade shall, on making a claim as respects the consideration
which has been so applied, be treated for the purposes of this Act—
(a) as if the
consideration for the disposal of, or of the interest in, the old assets were
(if otherwise of a greater amount or value) of such amount as would secure that
on the disposal neither a gain nor a loss accrues to him, and
(b) as if the amount or
value of the consideration for the acquisition of, or of the interest in, the
new assets were reduced by the excess of the amount or value of the actual
consideration for the disposal of, or of the interest in, the old assets over
the amount of the consideration which he is treated as receiving under
paragraph (a) above,
but neither paragraph (a) nor paragraph (b) above
shall affect the treatment for the purposes of this Act of the other party to
the transaction involving the old assets, or of the other party to the
transaction involving the new assets.
19.
Section 165 TCGA provides:
(1) If—
(a) an individual (“the
transferor”) makes a disposal otherwise than under a bargain at arm's length of
an asset within subsection (2) below, and
(b) a claim for relief
under this section is made by the transferor and the person who acquires the
asset (“the transferee”) or, where the trustees of a settlement are the transferee,
by the transferor alone,
then, subject to subsection (3) and sections 166,
167, 169, 169B and 169C, subsection (4) below shall apply in relation to the
disposal.
(2) An asset is within this subsection if—
(a) it is, or is an
interest in, an asset used for the purposes of a trade, profession or vocation
carried on by—
(i) the transferor, ….
…. (4) Where a claim for relief is made under this
section in respect of a disposal—
(a) the amount of any
chargeable gain which, apart from this section, would accrue to the transferor
on the disposal, and
(b) the amount of the
consideration for which, apart from this section, the transferee would be
regarded for the purposes of capital gains tax as having acquired the asset or,
as the case may be, the shares or securities,
shall each be reduced by an amount equal to the
held-over gain on the disposal.
20.
….Section 43(1) Taxes Management Act 1970 provides (in relation to the
years of assessment in question):
(1) Subject to any provision of the Taxes Acts
prescribing a longer or shorter period, no claim for relief in respect of
income tax or capital gains tax may be made more than 5 years after the 31st
January next following the year of assessment the year of assessment to which
it relates.
Discussion
21.
As noted above, the appellants produced no evidence to substantiate the
claim that they had transferred the beneficial interest in the property to
their son on 6 April 2001 or at any later time. The fact that Mr A B Patel
became a partner on 6 April 2001 does not, of itself, mean that he acquired an
interest in the property previously held by the appellants. No documentation
relating to the transfer and no evidence in relation to the terms on which Mr A
B Patel became a partner was produced by the appellants.
22.
Accordingly, we consider that the appellants have failed to discharge
the onus of proof which lies on them to demonstrate that the assessments are
incorrect.
23.
We consider, therefore, that it was the appellants who disposed of their
interests in the property on 5 October 2007, not Mr A B Patel.
24.
Furthermore, the appellants ceased to be partners in the partnership by
5 April 2000. Their names did not appear on the partnership tax returns for the
year beginning 6 April 2000 or any later year and they did not declare partnership
income from the partnership in their returns for 2000-2001 and subsequent
years. This clearly indicates that they were not partners in the partnership
after 5 April 2000.
25.
In submissions to the tribunal the appellants' accountants argued that
the appellants did not leave the partnership until 5 October 2007 i.e. the date
when the property was sold. We do not accept the submission. No evidence was
produced to substantiate this claim and for the reasons given above we consider
it more probable than not that the appellants left the partnership by 5 April
2000.
26.
The appellants' accountants also asserted that if the appellants left
the partnership in 2000, they became partners after the death of Mr Patel's
brother – their "interest was being represented by their son", Mr A B
Patel. The accountants asserted that Mr A B Patel (and the appellants)
believed that the appellants were holding the property on an “implied trust”
for the benefit of the son.
27.
The difficulty with this submission, insofar as we understand it, is
that there was simply no evidence to support it: no trust documents, no witness
evidence and no contemporaneous correspondence were produced.
28.
As a result, it was not possible for the appellants to claim roll-over
relief under section 152 TCGA because they were not partners in the partnership
after 5 April 2000 and, therefore, the property was not used the purposes of
the trade carried on by the appellants on 6 April 2001 when they claim to have
transferred their interest to their son or on 5 October 2007 when the property
was sold to a third party. In any event, as we have already held, there was no
evidence that the appellants transferred their interest to their son on that
date.
29.
In relation to the claim for holdover relief under section 165 TCGA,
this claim must fail because we have held that there was no transfer, legal or
beneficial, by the appellants to Mr A B Patel on 6 April 2001. In any event,
no claim was made within the period prescribed by section 43 Taxes Management
Act 1970. The time period is extended in the case of an assessment made under
section 36 Taxes Management Act, but the assessments under appeal were not made
under this provision.
Decision
30.
For the reasons given above, we dismiss these appeals.
31.
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.
GUY BRANNAN
TRIBUNAL JUDGE
RELEASE DATE: 30 January 2013
