In John Arthur Day and Amanda Jane Dalgety v HMRC [2015] UKFTT 139 (8 April 2015), the FTT upheld discovery assessments relating to the disposal of three properties.
The taxpayers had sold three properties that they had previously held jointly. Neither of them had disclosed the disposals in their tax return. The issue was the calculation of the capital gains.
The FTT first rejected the taxpayers’ contention that disposal monies which had been paid by their solicitor to redeem mortgages were not part of the consideration. The question for determining the consideration was ‘what did the purchaser give up’. Secondly, the acquisition cost was not net of the mortgage amount. Again, the mortgage amount was part of what the appellants had given up to purchase the property and was therefore part of the acquisition cost. Finally, TCGA 1992 s 38 allowed the deduction of costs ‘incidental’ to the acquisition and disposal. The list of such incidental costs contained in s 38 was exhaustive and did not include mortgage fees.
The FTT accepted however that under the Vendor Paid Deposit Scheme which had been used for one the properties, the deposit had moved not from the purchaser but from the vendor, so that it had not been part of the consideration.
Finally, the FTT found that Mr Day had not occupied the third property so as to qualify for private residence relief. The FTT accepted that the appellants may have had a row; however, the split had not been permanent enough for Mr Day to purchase a property with the intention of occupying it as his main residence. The FTT found however that the costs incurred in painting the property were deductible as they would have enhanced its value.
Why it matters: The case confirms that a mortgage amount is part of the consideration and that mortgage fees are not deductible when calculating a capital gain. It is also a reminder that taxpayers should be mindful of ‘dressing up’ the occupation of a property as that of a principal residence. Without evidence of a degree of permanence and continuity of occupation, private residence relief will not be available.
In John Arthur Day and Amanda Jane Dalgety v HMRC [2015] UKFTT 139 (8 April 2015), the FTT upheld discovery assessments relating to the disposal of three properties.
The taxpayers had sold three properties that they had previously held jointly. Neither of them had disclosed the disposals in their tax return. The issue was the calculation of the capital gains.
The FTT first rejected the taxpayers’ contention that disposal monies which had been paid by their solicitor to redeem mortgages were not part of the consideration. The question for determining the consideration was ‘what did the purchaser give up’. Secondly, the acquisition cost was not net of the mortgage amount. Again, the mortgage amount was part of what the appellants had given up to purchase the property and was therefore part of the acquisition cost. Finally, TCGA 1992 s 38 allowed the deduction of costs ‘incidental’ to the acquisition and disposal. The list of such incidental costs contained in s 38 was exhaustive and did not include mortgage fees.
The FTT accepted however that under the Vendor Paid Deposit Scheme which had been used for one the properties, the deposit had moved not from the purchaser but from the vendor, so that it had not been part of the consideration.
Finally, the FTT found that Mr Day had not occupied the third property so as to qualify for private residence relief. The FTT accepted that the appellants may have had a row; however, the split had not been permanent enough for Mr Day to purchase a property with the intention of occupying it as his main residence. The FTT found however that the costs incurred in painting the property were deductible as they would have enhanced its value.
Why it matters: The case confirms that a mortgage amount is part of the consideration and that mortgage fees are not deductible when calculating a capital gain. It is also a reminder that taxpayers should be mindful of ‘dressing up’ the occupation of a property as that of a principal residence. Without evidence of a degree of permanence and continuity of occupation, private residence relief will not be available.
