The Commissioners for HMRC v Gerald Lee
[2023] UKUT 242 (TCC)
Andrew Nunn v The Commissioners for HMRC
27 March 2024
[2024] UKFTT 298 (TC)
First-tier Tribunal
A homeowner sold part of his garden for development. Even though the sale wasn't officially completed until later, the tax rules said the sale happened when the developer started building. Because the land was still part of the garden at that time, the homeowner got tax relief. The extra tax the government wanted to charge was cancelled.
Key Facts
- •Mr. Nunn sold part of his garden land to a developer in 2016 for £295,000.
- •A letter signed on June 2, 2016, was disputed as to whether it constituted a legally binding contract.
- •The developer began construction before the formal contract was signed on September 7, 2016.
- •Mr. Nunn claimed Principal Private Residence Relief (PPR) on the sale.
- •HMRC disallowed the PPR claim, resulting in a capital gains tax (CGT) charge of £72,633.80 and a penalty assessment.
Legal Principles
For PPR relief under s 222(1)(b) TCGA 1992, the relevant date for determining whether the land was part of the garden is the date of disposal.
Varty v Lynes 51 TC 419 (Ch D)
The disposal date for CGT purposes is the date the contract is made (s 28 TCGA 1992), not the date of conveyance.
s 28 TCGA 1992
A contract for the sale of land must be in writing and include all agreed terms (s 2(1) Law of Property (Miscellaneous Provisions) Act 1989).
s 2(1) Law of Property (Miscellaneous Provisions) Act 1989
A constructive trust may arise if there's an express agreement relied upon to the claimant's detriment, making it unconscionable for the defendant to deny ownership (Matchmove Ltd v Dowding and Church).
Matchmove Ltd v Dowding and Church, 2016 EWCA Civ 1233
Appropriation to trading stock occurs when an asset, previously not trading stock, is used for trading purposes. A deemed disposal arises at market value (s 161 TCGA 1992). The determination of whether an adventure in the nature of trade exists is highly fact-specific, considering the overall transaction and not solely relying on the ‘badges of trade’.
s 161 TCGA 1992; Marson v Morton (1986) 59 TC 381; Whyte v Commissioners for HMRC [2021] UKFTT 270 (TC); Taylor v Good (Inspector of Taxes) [1974] STC 148
Outcomes
Appeal allowed in part.
The June 2, 2016, letter did not create a contract but triggered an appropriation of land to trading stock. PPR relief is available on this deemed disposal because the land was part of Mr. Nunn's garden at that point.
Penalty assessment set aside.
HMRC's disallowance of PPR was incorrect, therefore, Mr Nunn did not act carelessly.