In Richard Lee & Nigel Bunter v HMRC [2019] TC07269 the First-Tier tribunal confirmed that time apportionment is a just and reasonable basis to apportion a capital gain between business and non-business assets.
The concept of time-apportioning gains for the purposes of capital gains tax has been a common feature of the CGT regime since it was introduced in the Finance Act 1965. It applies to various reliefs:
- Entrepreneurs relief and associated disposals (and taper relief before it).
- Rollover relief
- Private residence relief (PRR)
This case was about taper relief and apportioning the gain on a disposal of shares between business and non-business assets. It followed on from the earlier case Lee & Bunter vs Commissioners for HMRC [2017] TC05757, where the FTT found that a tax scheme which aimed to avoid capital gains tax for an offshore trust by taking advantage of the double tax treaties, failed, resulting in £5.5m of CGT being due.
Mr Lee and Mr Bunter argued that a larger proportion of the gain on their shares should be allocated to the business asset period than resulted under time apportionment; there had been a dramatic increase in the value of the shares during that period and therefore on a “just and reasonable” basis most of the gain should be attributed to the period.
The FTT judge in dismissing the appeal, confirmed that time apportionment was the correct method to use and was not unjust or unreasonable; the legislation required an apportionment of the gain to be made, and gave an instruction as to how that apportionment was to be made, which was on a time basis.
He said:
“Whilst it is a rough and ready method of apportionment, time apportionment is relatively simple and allows taxpayers under the self-assessment system to calculate their tax liabilities with certainty without having to resort to expensive valuation arguments.”
Taper relief ended in 2008 when Entrepreneurs' relief (ER) was introduced however the principles decided here regarding time apportionment of a gain remain valid for ER and the other reliefs mentioned above.
Links to our subscriber guides:
- Entrepreneurs relief
- CGT reliefs: disposal of a business or its assets
- Private residence relief (PRR)
External link:
