Taxation – Income tax – Capital gains tax – Appellant buying and selling four residential properties – First-tier Tribunal (FTT) concluding purchase and sale of properties was not trading but liable to capital gains tax – Appellant appealing and respondent commissioners cross-appealing – Whether appellant carrying on trade – Whether capital gains within exemption for job-related accommodation – Appeal allowed in part – Cross-appeal dismissed
In August 2017, the respondent commissioners wrote to the appellant asking him to submit a self-assessment return for the tax year 2015-16 on the basis that they had received information that he had disposed of a property which was not his main residence.
The appellant responded that the property was not liable to capital gains tax (CGT) as it fell within the exemption for job-related accommodation in section 222(8) of the Taxation of Chargeable Gains Act 1992. He delivered a tax return as requested.
The respondents disputed that the exemption was available. They became aware that the appellant had bought and sold four properties between 2010 and 2015 and requested further information concerning those transactions.
The respondents opened an inquiry into his 2015-16 tax return and issued assessments and a closure notice assessing the appellant to income tax or, in the alternative, CGT. They also issued penalties to him for deliberate failure to notify his liability to tax.
On the appellant’s appeal, the First-tier Tribunal (FTT) concluded that the purchase and sale of the properties was not a trade but that the appellant was liable to CGT. Further, the exemption in section 222(8) of the 1992 Act for job-related accommodation (JRA) was not available since it required both that the accommodation was provided by reason of employment, and that the appellant intended to occupy the property disposed of as his only or main residence. The appellant appealed. The respondents cross-appealed.
Held: The appeal was allowed in part. The cross-appeal was dismissed.
(1) The badges of trade were: whether the transaction was one-off; whether the transaction related to an existing trade; the nature of the subject matter; the way in which the transaction was carried through; the source of finance; whether work was done on the item for resale; whether a resold item was broken down into saleable lots; the purchaser’s intentions as to resale at the time of purchase; and whether the item purchased provided enjoyment for the purchaser or produced income pending resale: Marson v Morton [1986] STC 463 and Eclipse Film Partners No 35 LLP v HMRC [2014] EWCA Civ 95 considered.
It was a matter of law whether some factual characteristic was capable of being an indication of trading activity and depended upon an evaluation of all the facts relating to it against the background of the applicable legal principles.
The conclusion of the tribunal of fact as to whether the activity was or was not a trade could only be successfully challenged as a matter of law if the tribunal made an error of principle or if the only reasonable conclusion on the primary facts found was inconsistent with the tribunal’s conclusion: Ingenious Games LLP v HMRC [2021] EWCA Civ 1180 considered.
(2) In the present case, the FTT had correctly directed itself as to the law and made findings relevant both to the badges of trade and the more impressionistic approach to the existence of a trade left open by Eclipse and Ingenious Games. It was tolerably clear that the FTT was focusing on profit generation, length of ownership, modification and connection to an existing trade as the most relevant factors. It concluded that, while modification of the properties resulting in a profit was indicative of trading, the generation of profit and length of ownership, while normally pointing towards trading, in this case did not.
The test was whether the FTT made an error of principle or whether a conclusion that the appellant was trading was the only reasonable conclusion for a tribunal to have reached. The weight to be given to a particular factor, if it was not irrelevant, was for the FTT, and was not for the UT to second-guess. The FTT’s decision on trading did not involve any error of principle and was within the range of decisions open to it. The respondents’ cross-appeal was therefore dismissed.
(3) The exemption from CGT provided by section 222(8) treated as a person’s only or main residence (exempt under section 222(1)) a dwelling-house owned by that person during a period in which he: (i) resided “in living accommodation which is for him job-related” (the JRA condition); and (ii) “intends in due course to occupy the dwellinghouse… as his only or main residence” (the intention condition).
Living accommodation was “job-related” if it was provided by reason of the person’s employment and it was necessary for the proper performance of the duties of employment that the employee should reside in that accommodation; or the accommodation was provided for the better performance of the duties of an employment in which it was customary for employers to provide accommodation for employment: section 222(8A)(a)(i) and (ii).
In the present case, whether or not the family home in which the appellant resided to care for his father during the relevant period was JRA turned on those questions. The FTT erred in law in its conclusion that the accommodation lived in by the appellant was not provided by reason of employment, because it failed to direct itself as to the correct test and took into account irrelevant factors.
(4) The appellant also needed to establish that he satisfied the intention condition in section 222(8) which looked solely at intention. The intermingling of findings as to intention with findings as to actual occupation in the FTT’s conclusions relating to section 222(1) could not be safely transposed to amount to a clear finding in relation to section 222(8).
The FTT erred in law in its determination of whether or not the relevant accommodation was provided by reason of employment and/or was necessary for the performance of the employment duties.
The error was material, so the decision had to be set aside and the matter would be remitted to a differently constituted FTT, taking a fresh approach to the issues, to determine. The issues turned on findings of fact which the UT was not in a position properly to make, and in respect of which there had been no oral hearing of the evidence.
Keith Gordon and Siobhan Duncan (instructed pro bono) appeared for the appellant; Laura Inglis (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Campbell v Commissioners of HM Revenue and Customs
