Non-Resident Capital Gains Tax (NRCGT) Return – Reasonable Excuse Allowed

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As we have written previously (see https://eavesandco.co.uk/blog/non-resident-capital-gains-tax-nrcgt/) the rules requiring a Non-Resident Capital Gains Tax (NRCGT) return to be filed within 30 days of disposing of relevant property have the potential to cause taxpayers problems.

A recent case highlighted this point in that it dealt with a late NRCGT return. The facts of the case in P Saunders v HMRC were that the taxpayer was resident in Saudi Arabia and had been since 2012. She continued to file UK tax returns as she was still receiving rental income from the property.

The property was sold in November 2015, which was only a few months after the new rules came into force. As she was not aware of the rules she did not complete an NRCGT return but instead included the disposal (which in fact gave rise to a capital loss) on her self-assessment return as normal. HMRC were seeking penalties of £1,300 which the taxpayer appealed to the Tribunal.

HMRC argued that the taxpayer should have been aware of the new rules and that she could have found out about it through the chancellor’s autumn statement and on HMRC’s website.

The Tribunal judge considered whether this was reasonable, stating, “Was it reasonable to expect her to read the Chancellor’s Autumn Statement in December 2013? The Statement (Green Book) ran to 123 pages and the proposal regarding non-resident capital gains on the sale of UK properties was 20 contained in a six line paragraph at 1.295”. The implication appears to be that it was not reasonable to expect this!

They also considered the idea that ignorance of the rules is not a reasonable excuse. It was noted that, “The concept in criminal law that ignorance of the law does not excuse is necessary, otherwise proof of intent could be impossible. In civil law however it does not apply, otherwise it would mean that everyone must know all the law, all of the time”. It is, however, noted that the presumption of knowledge is “necessarily set at a high threshold”.

The judge found that in this case, it was reasonable that the taxpayer was not aware about the legislation or where to find it and their appeal was allowed.

Interestingly, they also considered as an aside that there may not even have been an obligation to complete a return as there was a capital loss. This revolved around a strict reading of the legislation at TMA 1970 s12ZA and s12ZB as to whether she could be a “taxable person” given that she would have not been chargeable to Capital Gains Tax and that there would not have been any chargeable NRCGT gain. One suspects HMRC would not be happy with this reading but it could be an interesting argument to take in future cases.