Property disposal was on trading account

In a recent case the first tier tax tribunal denied the taxpayer’s claim that HMRC be prevented from rasing a new argument

In 2002 the taxpayer partnership sold a property originally acquired in 1996. The disposal was reflected on its partnership tax return as a capital gain for the year ended 5 April 2003. The taxable gain was then calculated on the basis that business asset taper relief applied.

HMRC opened an enquiry into the 2003 return and, when this was concluded, issued a closure notice. This stated that there was no capital gain and that the partnership turnover be increased by £1,150,002 to reflect the disposal proceeds. A partnership statement reflecting HMRC’s amendments was also issued.

The taxpayer initially appealed to HMRC against the closure notice. Following a review, HMRC upheld the decision, sending a letter saying ‘should the tribunal find that the transaction was by way of an investment [rather than as part of the partnership’s trading activities as decided in the closure notice], HMRC would argue that because the land was not a trading asset, taper relief should be restricted.’

The partnership appealed to the Tribunal, adding that as the closure notice contained no reference to restriction of taper relief, HMRC should be precluded from using that argument.

The tribunal was referred to the case of Tower MCashback v CRC [2010] where Moses LJ, took the view that an appeal against the conclusion stated in a closure notice is confined to the subject matter of the enquiry but a tribunal hearing would not be limited only to the arguments delivered in the enquiry and its conclusions.

In addition, HMRC argued that the issue of whether CGT taper relief should be restricted was within the scope of the subject matter of the appeal.

The tribunal agreed, saying ‘although HMRC’s conclusion… reflected the trading issue, the subject matter… was the purchase and sale of the property.’

The arguments about CGT taper relief, therefore, were ‘within the scope of the subject matter’.

The tribunal concluded that ‘it is clear that this is not a case where the appellant can claim to have been ambushed’ and dismissed the appeal.

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