Weekly Tax Update 02 July 2020

The FTT has found that there was not enough evidence to prove that three properties were owned with the required degree of permanence to qualify for PRR. 

The taxpayer owned at least five properties during the three tax years under review. Three of the properties were the subject of the case, all of which were listed for sale within short periods from acquisition.

The FTT found that there was no evidence that the taxpayer lived in the properties. She was unable to produce satisfactory evidence of occupation such as bank statements or insurance documentation, and only very limited utility bills. She also undertook significant improvement works, and the FTT noted that the photographs provided would have made one of the properties unsuitable for habitation by her young family. During this period, she also continued to own a further property which HMRC argued was her main home. 

The FTT found that there was insufficient evidence that the three properties in question were lived in with a degree of permanence and so PRR was not available. The taxpayer’s appeal was dismissed. The FTT also noted that there were short periods between the acquisition and disposal of each property and improvement works were carried out before sale: the taxpayer was clearly trading in property. 

The FTT did not appear to consider the CGT rule that removes CGT relief where the property is purchased wholly or partly for the purpose of realising a gain.

Hashmi v HMRC [2020] UKFTT 229 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07715.html

The FTT has found that a transfer of property amongst family members was a disposal, though it was later transferred back. There was no evidence that a trust was created by the first transfer, and an understanding among the family over communal ownership did not override the legal contract of sale.

In 2012, the taxpayer was in financial difficulty following a conviction, and though he owned a property was unable to obtain a mortgage. He transferred the property to a relative’s company, and the relative took out a mortgage on it to pay the sum due. In 2018, the property was transferred back to a company owned by the taxpayer.

HMRC raised an assessment for CGT on the first transfer. The taxpayer appealed on the grounds that he had retained beneficial ownership, and the relative held the property on an implied trust. The mortgage repayments were met from the rent, with any shortfall made up by the taxpayer, and he had dealt with tenants and maintenance himself. The same value was used for both transfers, though two flats had been added at the taxpayer’s expense.

The FTT agreed with HMRC that no trust had existed. There was no reference to it in the transfer documents, the recipient company had declared it on its balance sheet, and rents had been declared in the corporation tax return, not the taxpayer’s personal return. The property transfer was made for consideration, by agreement between the parties with the intent to create legal relations, and so was a valid disposal. The assessment and associated penalties were upheld.

Bhiki v HMRC [2020] UKFTT 243 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07728.html

The FTT has disallowed travel expenses for an employee who worked at a number of sites in one area. It found that as there were no substantial changes in his travel time to different sites, they were one workplace, at which he had therefore worked too long for it to be considered temporary.

The taxpayer worked at a number of construction sites in London., He lived in the area on weekdays, although his main home was elsewhere. Each would qualify as a temporary place of work on length of time worked there, so he claimed travel expenses between each workplace and his temporary accommodation in the area. HMRC raised assessments of almost £20,000 over two tax years. It argued that as the sites were all in the London area, there was no substantial change to the taxpayer’s travel on change of workplace for the purposes of the legislation.

The FTT considered the journey times to each of sites from his accommodation, and found that, as no travel time differed by more than half an hour from another, nor cost varied by more than £14, the change of worksites was not substantial. All the sites were therefore treated as one workplace, at which he had worked too long for it to be considered temporary. The appeal was dismissed.

Sambhi v HMRC [2020] UKFTT 231 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07717.html

Payments made by an LLP to a member were found to be made to him as a member, not an employee, so subject to self-employed NICs for which he was liable. The documents appointing him as a member of the LLP determined the tax treatment.

The taxpayer, who had been appointed as a member of an LLP, held that payments from the LLP were made to him as an employee rather than under the partnership profit sharing arrangement. The Court was asked to determine the status of the payments for NIC purposes, with the IT treatment to be resolved separately.

The FTT went through the details of his appointment to the partnership, and the duties undertaken whilst working for the partnership. It was unable to rely on the taxpayer’s evidence, but looked at the documents signed by him on joining the firm, which clearly showed intention to appoint him as a member. It found that the payments were made to him as partner, as treatment for tax purposes is determined by the LLP provisions. It dismissed his contention that he was not treated as a member but as an employee. He had filed two tax returns based on being a self-employed member, before filing as an employee, and given that he was a professional tax adviser he would have understood the difference.

Wilson v HMRC [2020] UKFTT 230 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07716.html