One of the problems of trying to design a nice, neat efficient computer system to administer and collect taxes is that the poor, unfortunate officers at HM Revenue and Customs are concerned that they have to deal with people – and as many can confirm, sometimes people can be wayward, forgetful or just act in a different way to that expected…

This leads to Tax Cases…

In S. Sehgal, a lady claimed repayment of capital gains tax on the grounds that she had never made the relevant claim.

However, she had paid the tax, signed her Tax Return, declaring the gain, plus relevant documents had been filed at Companies House showing she had been a shareholder in the Company at the time it was sold.  The documents were filed at the time she was Company Secretary.

She argued she was not beneficial owner of the shares, but had just left everything to her husband to deal with.  The First Tier Tribunal inferred that (before her divorce) she had broadly consented to this pattern.

It is apparent that afterwards she wished she had not, but this was not really the issue before the Court, which is whether she was entitled to overpayment relief under Para 2 Schedule 1 AB TMA 1970.

The courts found she was not because the evidence showed she was the legal owner of the assets sold, and there was no real evidence produced to suggest she was not also the beneficial owner.  Hence, it seemed fair to assume her original tax return was correct and the tax was due.

Interestingly, the Courts also recorded the fact that the share sale and associated tax payment had been raised in divorce proceedings and so had effectively been considered already in the settlement.

Although academic, because of the underlying decision, the Judge found that HMRC had not proven the claim was time barred.


The lessons for professionals advising on family wealth disputes are:-

a) Always consider tax consequences from a commercial/family law context as well as tax compliance.

b) Make sure proper documentation backs up the true intentions of the clients.

In a recent tribunal case (MJ and BA Harte (TC1951)), a gentleman inherited a house from his father in 1992.  In May 2007 he transferred a half share in the property to his wife, and in October of the same year the property was sold.

The couple claimed Principal Private Residence relief (PPR) on the property sale even though they had another home during this period.  Their claim was based on the fact that they had intended to make the inherited property their home, but had only ever spent brief spells there.

The Tribunal found that their spells in the house did not add up to occupation, and it could not have been their home because they did not transfer any possessions.

Furthermore the appellants did not permanently vacate their original residence, so their original home remained their principal private residence.  A married couple can only have one PPR at any one time.

The claim for PPR was therefore denied.


The recent changes in rules on Capital Gains Tax and Entrepreneurs’ Relief mean that it is more important than ever.  With the main rate of CGT now 28% and the rate on assets qualifying for ER remaining at 10%, the benefit of attaining ER is increased to 18% from the previous 8%.  Coupled with the lifetime limit increase to £10m, the overall lifetime value of ER is a maximum of £1,800,000; a significant increase on its initial value of £80,000.
It is therefore more important than ever to fully consider the availability of ER on transactions and ensure that all the conditions are met.