The First-tier Tribunal has not taken a consistent approach in deciding whether or not there is a reasonable excuse for non-resident capital gains tax (NRCGT) being filed late.
Until the law was changed in 2015, individuals who were not resident in the UK did not have to pay capital gains tax on disposals of UK residential property. The new reporting requirements are extremely tight: the NRCGT tax return has to be made to HMRC within 30 days of the date of completion.
Many people who were affected by the new law did not know about it - after all, by definition, they might not have been resident in the UK at the time the law changed.
Penalties are due for late returns, starting at £100 and going up to a minimum of £1,600 (in theory) for NRCGT returns which are a year late. The penalty is charged whether or not there is actually any CGT to pay. The law allows the penalty to be waived if the taxpayer has a reasonable excuse.
It is £1,600 in theory because although HMRC confirmed in June 2017 that it would no longer charge daily penalties of £10 per day for 90 days where the NRCGT return was three months late, the law has not been altered so HMRC could change its position at a later date. As such, currently the minimum penalty is £700 for a return filed over a year late, ie the initial £100 late filing penalty plus the further penalties after six and 12 months.
A number of taxpayers have appealed to the tax tribunal on the basis that they had a reasonable excuse on the basis that they did not know about the change in the law and only submitted the NRCGT return when they realised they needed to do so.
This approach found favour in one of the early cases, where the judge poured scorn on HMRC's argument that taxpayers should have made themselves aware of the law. A flavour of his approach can be seen in this extract: 'I am sure that every December in the last few years the appellant, like other inhabitants of ... Australia, has been agog with excitement waiting for the British chancellor's Autumn Statement' (McGreevy v HMRC [2017] UKFTT 690 (TC) at para 159)
The McGreevy judgment gave encouragement to other taxpayers who had received similar penalties for late filing of NRCGT returns. At least one other judge took a similar view, but others have said that ignorance of the law cannot be a reasonable excuse for the late filing of a return and have upheld the penalty assessments:
|
NRCGT late filing penalty case |
Reasonable excuse? |
|
Pidcock v HMRC [2018] UKFTT 376 (TC) |
No |
|
Bradshaw v HMRC [2018] UKFTT 368 (TC) |
Yes |
|
Cobb and another v HMRC [2018] UKFTT 343 (TC) |
No |
|
Nugent v HMRC [2018] UKFTT 342 (TC) |
No |
|
Scowcroft v HMRC [2018] UKFTT 295 (TC) |
Yes |
|
Wong v HMRC [2018] UKFTT 286 (TC) |
No |
|
Harrop v HMRC [2018] UKFTT 281 (TC) |
No |
|
Hart v HMRC [2018] UKFTT 207 (TC) |
Yes (although the reasonable excuse was due to the reliance on an adviser) |
|
Jackson v HMRC [2018] UKFTT 64 (TC) |
No (although the penalty was reduced due to special circumstances) |
|
Hesketh v HMRC [2017] UKFTT 871 (TC) |
No |
|
Welland v HMRC [2017] UKFTT 870 (TC) |
No (although the penalty was reduced due to special circumstances) |
|
Saunders v HMRC [2017] UKFTT 765 (TC) |
Yes |
|
McGreevy v HMRC [2017] UKFTT 690 (TC) |
Yes |
As you can see, there is a fundamental disagreement between tribunal judges on this point and taxpayers are stuck in the middle; the outcome of a penalty appeal will depend on which particular judge hears it.
Much as a taxpayer might want to have his or her appeal listed before a particular judge, there is no power to pick and choose. It really is a matter of luck.
The issue here is that decisions of the First-tier Tribunal do not create precedent - each Judge is free to decide on the correct interpretation of the law regardless of what another judge might think.
The independence of the judiciary is a cornerstone of our justice system and judges must be able to make their own decisions free from interference. But it is, to say the least, highly confusing for taxpayers who ask for advice on whether they will succeed in a penalty appeal, only to be told that it all depends on which judge will hear it.
Decisions of the Upper Tribunal and higher courts do create precedent and at some point there needs to be a definitive ruling on the issue. Even then, individual appeals may still depend on the particular facts of the case (for example, whether an agent was appointed), but at least the legal framework would then be clear.
Tolley Guidance (www.tolley.co.uk)
The First-tier Tribunal has not taken a consistent approach in deciding whether or not there is a reasonable excuse for non-resident capital gains tax (NRCGT) being filed late.
Until the law was changed in 2015, individuals who were not resident in the UK did not have to pay capital gains tax on disposals of UK residential property. The new reporting requirements are extremely tight: the NRCGT tax return has to be made to HMRC within 30 days of the date of completion.
Many people who were affected by the new law did not know about it - after all, by definition, they might not have been resident in the UK at the time the law changed.
Penalties are due for late returns, starting at £100 and going up to a minimum of £1,600 (in theory) for NRCGT returns which are a year late. The penalty is charged whether or not there is actually any CGT to pay. The law allows the penalty to be waived if the taxpayer has a reasonable excuse.
It is £1,600 in theory because although HMRC confirmed in June 2017 that it would no longer charge daily penalties of £10 per day for 90 days where the NRCGT return was three months late, the law has not been altered so HMRC could change its position at a later date. As such, currently the minimum penalty is £700 for a return filed over a year late, ie the initial £100 late filing penalty plus the further penalties after six and 12 months.
A number of taxpayers have appealed to the tax tribunal on the basis that they had a reasonable excuse on the basis that they did not know about the change in the law and only submitted the NRCGT return when they realised they needed to do so.
This approach found favour in one of the early cases, where the judge poured scorn on HMRC's argument that taxpayers should have made themselves aware of the law. A flavour of his approach can be seen in this extract: 'I am sure that every December in the last few years the appellant, like other inhabitants of ... Australia, has been agog with excitement waiting for the British chancellor's Autumn Statement' (McGreevy v HMRC [2017] UKFTT 690 (TC) at para 159)
The McGreevy judgment gave encouragement to other taxpayers who had received similar penalties for late filing of NRCGT returns. At least one other judge took a similar view, but others have said that ignorance of the law cannot be a reasonable excuse for the late filing of a return and have upheld the penalty assessments:
|
NRCGT late filing penalty case |
Reasonable excuse? |
|
Pidcock v HMRC [2018] UKFTT 376 (TC) |
No |
|
Bradshaw v HMRC [2018] UKFTT 368 (TC) |
Yes |
|
Cobb and another v HMRC [2018] UKFTT 343 (TC) |
No |
|
Nugent v HMRC [2018] UKFTT 342 (TC) |
No |
|
Scowcroft v HMRC [2018] UKFTT 295 (TC) |
Yes |
|
Wong v HMRC [2018] UKFTT 286 (TC) |
No |
|
Harrop v HMRC [2018] UKFTT 281 (TC) |
No |
|
Hart v HMRC [2018] UKFTT 207 (TC) |
Yes (although the reasonable excuse was due to the reliance on an adviser) |
|
Jackson v HMRC [2018] UKFTT 64 (TC) |
No (although the penalty was reduced due to special circumstances) |
|
Hesketh v HMRC [2017] UKFTT 871 (TC) |
No |
|
Welland v HMRC [2017] UKFTT 870 (TC) |
No (although the penalty was reduced due to special circumstances) |
|
Saunders v HMRC [2017] UKFTT 765 (TC) |
Yes |
|
McGreevy v HMRC [2017] UKFTT 690 (TC) |
Yes |
As you can see, there is a fundamental disagreement between tribunal judges on this point and taxpayers are stuck in the middle; the outcome of a penalty appeal will depend on which particular judge hears it.
Much as a taxpayer might want to have his or her appeal listed before a particular judge, there is no power to pick and choose. It really is a matter of luck.
The issue here is that decisions of the First-tier Tribunal do not create precedent - each Judge is free to decide on the correct interpretation of the law regardless of what another judge might think.
The independence of the judiciary is a cornerstone of our justice system and judges must be able to make their own decisions free from interference. But it is, to say the least, highly confusing for taxpayers who ask for advice on whether they will succeed in a penalty appeal, only to be told that it all depends on which judge will hear it.
Decisions of the Upper Tribunal and higher courts do create precedent and at some point there needs to be a definitive ruling on the issue. Even then, individual appeals may still depend on the particular facts of the case (for example, whether an agent was appointed), but at least the legal framework would then be clear.
Tolley Guidance (www.tolley.co.uk)
