Trading places

28 November 2023

The recent First-tier Tribunal case of Gary Ives v HMRC was found in favour of the taxpayer, as HMRC was unsuccessful in its challenge of Mr Ives’ self-assessment returns. HMRC claimed that Mr Ives had omitted trading profits from his tax returns, whilst Mr Ives said that the profits realised were capital gains and subject to tax relief as each of the properties were his only or main residence at the relevant time. 

HMRC’s argument hinged on the fact that Mr Ives was a builder, and that he had purchased, renovated, and sold three properties over the period from 2008 to 2013 which had the hallmarks of a property development trade, and the profits on the property disposals were therefore taxable as trading profits. 

Mr Ives had a different recollection. He had been born and bred in London and he and his wife decided in 2008 to move out of the city and into the suburbs. This had unfortunately not only coincided with the banking crisis of 2008, but the start of several health-related issues for their wider family. This represented a difficult period for the Ives family in which they moved several times in short succession and undertook a significant amount of work on each property in order for it to meet their individual requirements. Family and financial issues led to the frequent changing of houses which, overall, generated a significant profit.

The case highlights that HMRC may not always accept that proceeds on the sale of an individual’s main home are tax-free capital gains. However, another notable point about this case is the apparent difference in preparation between the representatives for HMRC and Mr Ives, which is indicative of some of the struggles being faced by taxpayers in settling more complex tax disputes.

The Tribunal judges noted that the hearing had already been deferred from April 2022 due to ‘inadequate marshalling of evidence’ by HMRC at the time. The Tribunal adding that ‘in a case where the total amount in dispute is nearly £1 million, we would expect HMRC to take more care in preparing the hearing bundle and making sure that it contains all relevant material properly arranged, particularly so when their failings had already been pointed out to them some months previously by a judge of this Tribunal.’

The fact that the appellant came prepared with evidence and witness statements certainly did the taxpayer no harm. The judges noted that there were some inconsistencies in Mr Ives’ narrative, but that HMRC had not taken the opportunity to challenge the evidence given. 

More resources were promised to HMRC to address the tax gap in last week’s Autumn Statement and considering HMRC’s preparation for this case, it’s clear that is much-needed investment given the resource challenges HMRC appears to be facing.

Kate Aitchison
Kate Aitchison
Director, Private Client Tax
AUTHOR
Kate Aitchison
Kate Aitchison
Director, Private Client Tax
AUTHOR