Tribunal: Private deal or profit from employment?

Last year the Tribunal considered whether the transfer of a cottage to a taxpayer should be treated as taxable remuneration.

The appellant, a builder, traded through Hunt’s Construction Ltd, of which he was sole director and shareholder.

In 2004, a third party, Mr B, transferred a newly built cottage to the appellant as a result of an agreement between the company and Mr B. Under the agreement Mr B provided land for the company to develop three cottages. He bore the planning costs, architect’s fees etc, while the company paid for all construction work.

On completion, two of the plots were to be transferred to the company. In the event the appellant decided to pay for half of the developments costs himself, so that he could take one of the two cottages.

The cottages were built and, as agreed, Mr B transferred one to the company and the other to the appellant. In 2006, the appellant sold the cottage to the company, so that it owned both.

HMRC said the appellant had acquired the cottage at an undervalue, and the reason for this was his employment with the company. Thus it was taxable as money’s worth under ITEPA 2003, s 62(3).

The taxpayer appealed.

The First-tier Tribunal said the question was whether or not the transfer of the cottage to the appellant constituted a profit of his office or employment with the company.

The tribunal said that it was clear from the agreement that Mr B retained legal title to the land until he transferred title to the appellant and the company.

There was no evidence to say that the transfer to the appellant was not at an undervalue, so it was assumed he received money’s worth. However, was this money’s worth a profit of his employment?

The tribunal referred to the fact that the appellant had paid for one half of the development costs from his private resources.

It concluded that, on this basis, the transfer of the cottage took place because of the arrangement between the appellant in his individual capacity and the company, and not as a result of his employment.

The taxpayer’s appeal was allowed.

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