I am battling a voluntary disclosure case with HMRC.
One aspect of this case is that, the beneficiaries purchases 4% ownership in a large residential beachfront investment property in 2009. The co owned by the trustee held 96%. The paperwork is all clear. There is a trust deed, the beneficiaeris paid for their share. They used the property few weekends a year.
Its clear from the paperwork that this was an investment decision, because the property values were quite low at that time. The trustees wanted to sell the property after holding it for 3-4 years for a large profit. They did not want to rent it out just incase they get a quick sell and are unable to get out of the tenancy agreement.
The beneficiaries thought using it over a few weekends would be nice
In 2011, the decision was made to put the property back on to the market.
The beneficiaries were sold back their share at the same price as they purchased it. However, it was agreed that if the property sold at a profit, they would get their profit for the 4% share. The beneficiaries also did not enjoy spending weekends there because of very cold sea winds in the area.
Unfortunately, the property did not sell until 2016 at a loss. During 2011 and 2016, the husband of the beneficiary continued to check on the property via the gardeners and estate agents.
HMRC initially claimed that regardless of tenancy in common, the property was available to them and tried to impose annual rent benefit on each beneficiary of the 4% share.
We argued that as tenants in common, there is no benefit for the period 2009 to 2011. The property was only available to them for few weeks a year. And under tenancy in common there is no measurable benefit for their share. They have legal right to occupy the whole property.
HMRC are now arguing that there is a measurable benefit -which is the 96% value of the property. And if we provide them with details of another property in the area which can be bought by the 4%. Thye will deduct the annual rental value of this property against the annual rental value of above property.
Does anyone have a comment on this? - or are HMRC simply being difficult about this?
With regards to period between 2012 and 2016, they are claiming that property continued to be available. Even though there is clear paperwork that beneficiary share was sold back in 2011. The trustees did not expressly forbade the beneficiaries to use the property. However, it was all discussed over the phone, so no written correspondence. The husband of the beneficiary who kept an eye on the property is now in his 80s. He preferred to use telephone over emails. HMRC therefore wants to tax the beneficiaries on full annual rental benefit for 2012 - 2016.
It will be helpful if anyone of you has dealt with this situation with HMRC before or if there is any case law that would help.
We have agreed with HMRC that the cases below don’t apply to the situation of 2009 - 2011 because these cases relate to benefit received in relation to employment and that availability is different from measurable benefit.
Vasili v Christensen (76 TC 116) and GR Solutions ltd v HMRC [2012] UKFTT 234.
Added later:
Its interesting to note that in the finance bill 2017 passed in Sept 2017, sch 9 on value of benefits specifically states that ‘there is no benefit is whole of the interest is transferred’.
97C Value of benefit conferred by capital payment made by way of making
land available
(1) For the purposes of section 97(4), the value of the benefit conferred
by a capital payment consisting of making land available for the use
of a person § is, for each tax year in which the benefit is conferred
on P, the amount by which—
(a) the rental value of the land for the period of the tax year
during which the land is made available to P, exceeds
(b) the total of the amounts (if any) paid in the tax year by P—
(i) to the person conferring the benefit, in respect of the
availability of the land, or
(ii) so far as not within sub-paragraph (i), in respect of
costs of repair, insurance or maintenance relating to
the land.
> (2) Subsection (1) does not apply in the case where the person conferring
> the benefit transfers the whole of the person’s interest in the land to
> P.
Any suggestions or comments on this will be very much appreciated.
Many thanks
Sameera Nathoo