Judgment summary
This appeal concerned a discovery assessment dated 19 March 2025 issued under section 29 of the Taxes Management Act 1970 (TMA), assessing Mrs Jessbir Kaur to Capital Gains Tax of £58,874.52 on the disposal of a residential property in London on 30 July 2020 (para 1).
Legal title to the property was held at the time of disposal by her son, Mr Gursevake Singh Potiwal (GSP), but HMRC contended that section 60 of the Taxation of Chargeable Gains Act 1992 (TCGA) treated the disposal as made by Mrs Kaur because she was the person absolutely entitled as against the trustee (paras 2-3).
The Tribunal found that Mrs Kaur was absolutely entitled as against GSP as trustee, that the Assessment was validly made under section 29 TMA via the section 29(5) gateway, but that the Assessment was overstated because it used the originally agreed sale price rather than the actual (lower) disposal value, and that evidenced costs of establishing, preserving or defending title should be deducted (para 5).
Background
The Property was purchased by the Appellant in or about March 1991. Legal title was subsequently transferred to her husband in 2000, to her daughter in 2006, and to her son GSP in 2008, with GSP holding legal title at the date of disposal (para 14).
GSP completed the sale of the Property as registered proprietor. Following the disposal, the Appellant brought proceedings against GSP, first for an injunction in the High Court and then for a declaration as to entitlement in the County Court, tried before HHJ Evans-Gordon over three days in June 2022, with a formal order (the CC Order) made on 14 March 2023 (para 14).
The CC Order declared that GSP received and held legal title to the Property, and subsequently the net proceeds of sale and a replacement property, on trust for the Appellant absolutely (para 17).
By letter dated 13 December 2023, HMRC required the Appellant to file self-assessment returns for the years ending 5 April 2020, 2021 and 2022. On 18 January 2024 she submitted nil returns for those years, and HMRC did not open enquiries into them (para 14).
Core dispute
The parties agreed that legal title to the Property was not vested in the Appellant at the date of disposal, but disputed whether the statutory requirements of section 60 TCGA were satisfied, in particular whether beneficial ownership equated to being 'absolutely entitled as against the trustee' (para 3).
The parties also disputed whether HMRC validly exercised its powers under section 29 TMA to raise a discovery assessment, and if necessary whether any insufficiency of tax was brought about by careless behaviour within section 118(5) TMA (para 3).
A further dispute concerned the quantum of the Assessment, including the correct disposal value, the allowance for refurbishment expenditure, and whether legal costs incurred in the County Court proceedings were deductible under section 38(1)(b) TCGA as expenditure incurred in establishing, preserving or defending title to the Property (para 38-39, 46).
Court findings
The Tribunal found that the Appellant was the sole beneficial owner of the Property from 1991 until the Disposal, and that this beneficial ownership was equated with absolute entitlement as against GSP as trustee within the meaning of section 60(2) TCGA (paras 47, 57).
In reaching this conclusion the Tribunal reviewed the authorities relied on by the Appellant, including Saunders v Vautier, Stephenson v Barclays Bank Trust Co Ltd, Hoare Trustees v Gardner, Tomlinson v Glyn's Executor & Trustee Co, Booth v Ellard, McLaughlin v HMRC, Foskett v McKeown, Pearson v Inland Revenue Commissioners and Ayerst v C&K Construction Ltd, concluding that none supported the Appellant's case and that several supported HMRC's construction, particularly where there is a sole beneficiary (paras 48-63).
The Tribunal rejected the Appellant's Article 1 Protocol 1 argument, finding the Assessment represented the ordinary application of generally applicable tax legislation (para 64).
On discovery, the Tribunal found that Officer Evans subjectively formed the view, on reviewing the CC Order, that there was an insufficiency of CGT assessed, and that it was objectively reasonable for him to do so (paras 65-66). The Tribunal found that the Appellant had not provided HMRC with any information about the Disposal within the enquiry window, so the return itself was the only document meeting section 29(6) TMA and did not disclose the Disposal; accordingly the section 29(5) TMA gateway was satisfied (paras 21-22, 67).
The Tribunal declined to determine whether the Appellant had been careless within section 118(5) TMA, holding that the evidential picture on that issue was incomplete and that a finding might prejudice the Appellant given that HMRC had not yet decided whether to issue a penalty under Schedule 24 Finance Act 2008 (paras 28-29, 68).
On quantum, the Tribunal found the Assessment was wrongly based on the originally agreed sale price rather than the actual (lower) disposal value, notwithstanding that the buyer was unconnected to the Appellant or GSP (para 5(3)). The Tribunal further held that evidenced legal costs incurred in establishing, preserving or defending title to the Property, from the injunction proceedings up to and including the CC Order dated 14 March 2023, were deductible under section 38(1)(b) TCGA, but that costs incurred after that date related to recovery of the proceeds rather than title and were not so deductible (paras 76-79).
Outcome
The Tribunal held that the Appellant was the person absolutely entitled as against the trustee within section 60 TCGA and was therefore liable to CGT on the Disposal, that the Assessment was validly made under section 29 TMA via the section 29(5) gateway, but that the Assessment was overstated as to the disposal value and had failed to allow deductible legal costs (para 5, 81).
The appeal was allowed in part. The Tribunal directed that within 14 days the Appellant provide HMRC with invoices for legal costs incurred in connection with the injunction and CC Order between 28 July 2020 and 14 March 2023, and any evidence of enhancement expenditure reflected in the Property's value at disposal. HMRC were directed to notify the Appellant within 14 days of receipt of any amendment to the Assessment, being bound by the Tribunal's finding that costs of the injunction and County Court proceedings meet the requirements of section 38(1)(b) TCGA. If quantum could not be agreed, the parties were to notify the Tribunal for a further hearing (paras 80-82).
Major issues / areas of contention
- Whether the Appellant, as beneficial owner of a property legally held by her son, was 'the person absolutely entitled as against a trustee' under section 60 TCGA, making her liable to CGT on the disposal.
- Whether HMRC validly made a discovery assessment under section 29 TMA, including whether the section 29(5) gateway was satisfied given the Appellant's nil self-assessment return.
- Whether any insufficiency of tax was brought about by careless behaviour within section 118(5) TMA, an issue the Tribunal declined to determine given an incomplete evidential picture and a pending possible penalty decision.
- Whether the Assessment was correctly quantified, including the appropriate disposal value where the sale price was reduced from the originally agreed figure.
- Whether legal costs incurred in County Court proceedings to establish beneficial ownership were deductible under section 38(1)(b) TCGA as expenditure wholly and exclusively incurred in establishing, preserving or defending title to the Property.
- Whether the Appellant's Article 1 Protocol 1 human rights argument affected the application of section 60 TCGA.