In Rachel McGreevy v HMRC [2017] TC06109 penalties for a late non-resident capital gains tax return were cancelled; no disposal was proved in the relevant tax year, the taxpayer had a reasonable excuse or special circumstances.
A disposal by a Non-resident of UK residential property:
- Has been subject to non-resident capital gains tax (NRCGT) since 6 April 2015.
- A return is required to be made within 30 days of the date of completion unless it is a no gain/no loss disposal, for example a gift to a spouse.
- Payment of the tax is due by the same date unless the taxpayer is registered with HMRC under self-assessment and asks to defer the tax payment until the normal payment date for capital gains tax of 31 January following the end of the tax year.
Rachel McGreevy, resident in Australia, received penalty notices in September 2016 totalling £1,600; £700 in late filing penalties and £900 in daily penalties. The notices stated that the period of assessment was 7 August 2015 to 6 August 2016.
- She filed a non-resident CGT return in August 2016.
- The date of sale detailed in the return was July 2015. The date of the contract was not clearly established by HMRC.
- The gain in respect of the property was shown as nil due to Private residence relief (PRR) being available.
- Late filing penalties were assessed of £700 plus daily penalties of £900. HMRC cancelled the daily penalties following a change in policy in early 2017.
- The taxpayer appealed against the late filing penalties on the grounds that she was not aware that a separate CGT return was due until she prepared her self-assessment return for the 2015/16 period which was due by 31 October 2016 (a paper return). She thought the gain would be covered by her self-assessment return, which was filed on time. She stated that a reasonable, honest accidental and understandable delay had occurred which was rectified at the earliest opportunity.
- HMRC’s said the appellant had no reasonable excuse for her failure as there was ample publicity for the fact that a non-resident who disposes of a dwelling situated in the UK must make a NRCGT return within 30 days of the completion date. She had an obligation to stay up to date with legislation affecting her activities within the United Kingdom and on the sale of her property, acting as a prudent person, exercising reasonable foresight and due diligence, and having proper regard for her responsibilities under the Tax Acts, to have researched what is expected regarding her tax obligations.
- The first tier tribunal researched for itself the publicity available concluding that as this was a ‘failure’ case the burden of proof fell to HMRC to prove that the penalties had been properly imposed. It agreed that they had if the gains fell into 2015/16 but stated that the date of disposal had not been proved to be in that year. The judge accepted there was a reasonable excuse; the paper return that the taxpayer received for 2015/16 did not reference the NRCGT return, HMRC had not targeted the taxpayer with information about NRCGT despite her being on their radar as a non resident with UK income and property, and HMRC’s argument that the information about the need for a return was in the public domain was ‘claptrap’. There were special circumstances because the gain was fully exempt under PRR and the taxpayer filed a self assessment return in which she expected to be able to declare the gain.
Comments: This is a lengthy judgement for a case where the technical aspects are relatively straightforward. The judge went to great pains to show that the introduction of the NRCGT return had not been well handled by HMRC, saying of the penalties “There is a serious deficiency exhibited here in common sense, proportion and an ability to consider the position of what HMRC calls its customers.” It should give some hope to other taxpayers who have been penalised for late NRCGT returns that the courts will take a lenient approach to penalty appeals.
Links to our practical guides
Grounds for Appeal: Reasonable Excuse
Non-Resident CGT: UK residential property
The Non-Residents' Tax Toolkit
External links
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Rachel McGreevy v HMRC [2017] TC06109
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