Press Releases
October 2011
Capital Gains Tax ruling
Rickard Keen are urging individuals making a disposal for Capital Gains Tax (CGT) purposes to take note of a recent tribunal clarifying beneficial and legal ownership issues.
It is beneficial, not legal ownership, to which a CGT liability principally applies.
In Lawson v Revenue and Customs [2011] UKFTT 346 (TC), the taxpayer successfully appealed against a decision by HMRC which concluded that the taxpayer was the sole legal and beneficial owner of a property and that the whole capital gains tax was assessable on her.
The taxpayer successfully argued that her husband was entitled to half share of the capital gain arising as he was also a beneficial owner.
It was clear to the tribunal that the true purpose of purchasing the property was to provide stable and secure accommodation for the taxpayer’s daughter, as opposed to being held for investment purposes.
The tribunal had no doubt that the taxpayer and her husband shared all assets between them and held an equal and beneficial interest in all properties owned. This was on the basis of their relationship, irrespective of who held the legal title.
Keith Bell, from Rickard Keen, said: "Following the ruling, HMRC now takes into account a number of factors when assessing whether a beneficial interest is held by a third party.
"These factors are; legal title, occupation of the property, receipt of any rental income, provision of funds to purchase; and receipt of sale proceeds on disposal.
"HMRC guidance states that no single factor is determinative and each case must be considered on its own merit."
HMRC will also take into account whether a Form 17 has been submitted. Form 17 is broadly a declaration where the beneficial ownership of an asset is divided other than equally between the couple, and the split of beneficial ownership of both the asset and income from it is identical. Form 17 states what the split is.
In the absence of factual evidence to determine beneficial ownership (or Form 17), on the disposal of an asset HMRC will seek to tax the spouse (or civil partner) with legal title, or if they have joint legal title, on a 50:50 ownership basis.
"Keeping good records and evidence will therefore be important, particularly in cases where beneficial ownership is unclear," added Mr Bell.