CGT Holdover Relief - Donee with a change of heart

Trusts Discussion
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We are dealing with a situation whereby a gift was made by a father to his son of agricultural/business property. The gift qualified for CGT holdover relief and, whilst there was no mention of CGT holdover relief in the deed of gift, both father and son signed a HS295 claim form.

Prior to father filing his self assessment tax return for the tax year of the gift, there has been a family fall-out and the son has notified his father that he no longer wishes to be a party to the CGT holdover relief claim.

Naturally it would seem completely inequitable for the son to be able to do this and leave father with a ‘dry’ CGT charge, but I am struggling to see anything within the legislation (or HMRC manuals, which I appreciate are not binding) which provides absolute clarity that once the HS295 claim form has been signed by both parties, the father can file this with HMRC without further reference to his son.

I should imagine that a fall-out within a family post-gift is not completely uncommon, and so I hoped somebody may have encountered this before.

Any help/comment appreciated.

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See this thread

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Duncan refers to an interesting discussion in which he, Jack Harper and myself were involved on revocation but I don’t think we explicitly addressed your point although I haven’t re-read our discussion.

I would have thought that once a disposal has occurred and both donor and donee have signed the requisite form to claim hold-over relief then hold-over relief will apply to the disposal unless for some reason HMRC deny the claim.

The solution if either party has second thoughts is for the claim to be revoked which requires both donor and donee to agree to revocation. If only the son wishes to revoke I’m not sure he can do so.

Malcolm Finney

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This topic was covered on this forum in September 2019. Here is a link to the thread:
Holdover claim revocation - Trusts Discussion - The Trusts Discussion Forum

I agree with the consensus in that thread, that gift holdover relief claims may be revoked, either within the time limit for amending the self-assessment return in which the claim was made (if the claim was made as part of the return) or otherwise within 12 months from the claim being made (TMA 1970, Sch 1A, para 3(1)(b)).

Mark McLaughlin

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This query has 2 dimensions. First, HMRC. Secondly, father and son.

1 HMRC. The previous thread highlighted the (regrettable) lack of substantive and procedural law, and guidance, on revocation. But I agree with Malcolm that a claim which must be made by both parties surely cannot be revoked by one alone. The law anticipated that valuations could affect both parties (CG16400) but there is nothing like the CGT Regulations 1967 for hold-over claims.

Here the claim appears not to have been submitted yet. We are not told who holds the signed original form. The father could submit it, if he has it, but if the son tells HMRC that he rejects it HMRC might refuse to process it as their most neutral stance. They will want to stand aside from the family dispute as in rectification claims.

2 Father and son. It seems likely that the father had an expectation that the son would join in the claim and would suffer detriment if it were not made; and that was communicated to the son since he signed the form. The father may well have grounds to seek rescission of the gift. The arguments are as follows, in outline to avoid a legal treatise:

(a) promissory estoppel. Generally involves an anterior contract but not always and a deed comes close, as it makes binding a promise without consideration. Also, but not always, it must be a shield not a sword. Father could refuse to transfer the legal title if he has it. If the father refuses to pay the tax the son may be made to do so and then the father could dispute his right to recover under s282 (2) TCGA.
(b) conditional gift. The claim was a condition and is unfulfilled.
(c) unconscionable bargain. Particularly if the son has induced the father by agreeing to claim and now seeks in effect to deceive him so equitable fraud.
(d) mistake. The father justifiably thought the son would claim and the son’s reneging is equitable fraud.

I suspect a judge would strive hard to find a way of granting rescission if satisfied that the son does not have clean hands and is guilty of urine extraction.

3 As ever, much will depend on the facts and crucially the evidence. The deed is silent (? not even a helpful recital). Did the son execute the deed (not essential but helpful)? At risk of being a wiseacre I always spelled out in a deed of gift any consequential obligations of either party e.g. registration, tax filings, burden of related cost, default consequences, and made the donee execute also where these obliged him. Some of these might conceivably be implied by law.

Making the son formally aware of the consequences may well exacerbate family politics but the threat of action and costs may encourage him to change his mind. The law reports are replete with internecine family disputes over money when enough of it is at stake. There may not be mileage in threatening if action is not genuinely contemplated as it might make matters worse.

Jack Harper

1 Like
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Thank you all for taking the time to comment - it is much appreciated

Jonathan

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The gift from father to son appears to have been made and I assume the son is not in a position to now disclaim. The CGT charge has been precipitated.

Father and son agree to a claim for hold-over relief to be made and both then sign the requisite form provided by HMRC. The claim is then lodged by father assuming he has possession of the claim form.

IF the claim form has been lodged with HMRC, whether at a time when father and son were in agreement or whether after son states he no longer wishes to be a party to the claim, it seems to me that the claim stands and HMRC will accept it. HMRC’s position is presumably that the claim stands unless it is correctly revoked requiring both father and son to agree to revoke.

Even if the son notified HMRC as to his wish to no longer be a party to the claim I would have thought HMRC will simply request formal revocation. I do not see on what justifiable basis HMRC can decide not to accept the claim unless they believed, for example, that father had forged son’s signature. I do not see them refusing to process the claim because son notified them that he had changed his mind after signing.

If HMRC do accept the claim and father refuses to sign any revocation request with son then the matter becomes one between father and son bringing into play some of the issues mentioned by Jack in his post.

Malcolm Finney