In the first article in our Private Client – December 2019 publication, we look at the latest news for individuals and families.
Court of Appeal finds in favour of taxpayer in Private Residence Relief case
In the recent case of Higgins v HMRC, the Court of Appeal allowed the taxpayer’s appeal against HM Revenue & Customs’ (HMRC’s) decision that he was not entitled to full Private Residence Relief (PRR) on the disposal of a property he had purchased as part of an off-plan development.
Mr Higgins paid a reservation deposit to secure an apartment that was to be built on the site of an old hotel. He exchanged contracts in 2006 but did not complete the purchase until 2010, at which point he became entitled to occupy the property, which had been substantially completed a month earlier. He occupied the property as his main residence from completion of the purchase until the property’s onward sale in January 2012. HMRC denied Mr Higgins’ claim for full PRR, on the basis that his period of ownership ran from the point he exchanged contracts to the point it was sold, and he had not occupied it as his main residence for that whole period.
The Court of Appeal overturned the decision of the Upper Tribunal, finding that the period of ownership for PRR did not begin until completion of the contract. The decision noted that somebody would only be described as the owner of a property post-completion. In addition, the Tribunal did not see how ownership could commence before building work was completed, as the apartment did not exist prior to this (in contrast to the purchase of a plot of land on which a dwelling was later constructed).
This decision is good news for purchasers of off-plan property. For those who have occupied properties purchased off-plan as their main residence from the date of completion, full PRR will now be available.
Beware scams and fraud
Research undertaken by the Pensions Regulator indicates that people with a higher level of education are more likely to fall victim to pensions fraud. This highlights the need to take proper advice before committing to any changes to your pension fund. It is also important to be aware that it is not only pensions that are a target: fraudsters frequently purport to be from HMRC in order to persuade taxpayers to hand over money or personal details. As the tax return filing deadline draws closer, it is likely that these approaches will increase in frequency.
It’s important to be on your guard. Criminals pretending to be from HMRC may use various approaches, including phone calls, emails, fake websites, and letters. They are using increasingly sophisticated methods to mimic official HMRC correspondence and web pages, and can threaten legal action to try to push individuals into handing over money or information. We are already aware that a number of clients have received ‘phishing’ emails.
If you receive any communication purporting to be from HMRC, check it closely to see if anything strikes you as suspicious – HMRC has examples of a number of scams on its website. If you are unsure whether a message from HMRC is legitimate, please get in touch with your usual Saffery Champness contact before handing over any personal or financial information.
Fraud investigations net over £600 million since 2016
HMRC’s COP8 and COP9 investigations yielded a total of £610 million for the Treasury in the financial years 2016-17 to 2018-19.
The data, obtained by Saffery Champness through a Freedom of Information request, showed that COP8 investigations yielded £262 million (43%) and COP9 investigations yielded £348 million (57%) in the period analysed.
COP9 (Code of Practice 9) cases are criminal investigations launched in situations where HMRC suspects serious fraud has taken place. COP8 cases are civil investigations launched when HMRC believe there has been deliberate, but not criminal, avoidance of tax or where an individual has used a scheme to avoid or reduce tax liabilities.
The number of COP9 investigations opened has reduced year-on-year since 2016-17 (dropping from 549 to 438) but the cases closed with a penalty as a proportion of cases opened has increased year-on-year (from 33% to 53%).
We have seen HMRC take an increasingly hard line on suspected avoidance in recent years. Its pool of intelligence is growing, as are the legal tools at its disposal – with the Connect System and the Common Reporting Standard the tax man knows far more than ever before.
HMRC will continue to strengthen its resources for tackling tax evasion and individuals who are concerned they might not be compliant should seek advice and potentially take advantage of disclosure facilities provided by HMRC. The quicker mistakes are corrected the better the opportunity to resolve the mistake and minimise the penalties.