Is marriage break-up a reasonable excuse?
The First-tier Tribunal recently heard a taxpayer’s appeal against Self Assessment, late payment penalties. The penalties were in respect of Capital Gains Tax arising on a disposal of shares during the tax year ending 5 April 2012.
The tax due of over £100k was due to be paid in fullby 31 January 2013 but was not paid until 24 October 2013. HMRC imposed two penalties of 5% of the tax paid late amounting to £10,004. The taxpayer contended that he had a reasonable excuse for the late payment.
The taxpayer had been in financial difficulties and had sold shares in the company he worked for which realised £380,000. He had used the proceeds from the sale of the shares to settle existing debts (an IVA and an outstanding loan) and used most of the balance to purchase a second property, the taxpayer’s first property being in negative equity. The taxpayer told the tribunal that it was his intention to take out a mortgage on the newly acquired property in order to settle his Capital Gains Tax liability when it became due.
However, in March 2012 the taxpayer’s marriage broke-up and his wife started divorce proceedings. In addition, his wife placed a matrimonial restriction over the second property which prevented the taxpayer from either mortgaging or selling the property without his wife’s consent. The property was not put on the market until August 2012 and the sale of the property was not finalised until 24 October 2013. On the same day as the proceeds were received, the taxpayer paid his outstanding amount of CGT.
HMRC argued that the Appellant did not have a reasonable excuse for failing to pay his tax on time. However, the tribunal disagreed and found that the taxpayer could not have reasonably expected events to conspire to prevent him from discharging his tax liability on time. The appeal was allowed in full and the penalties discharged.