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A Year in BrassTax: 2022

/ 16 December 2022

Anthony Newgrosh

Throughout the year, our BrassTax emails bring readers our take on the latest tax stories, such as HMRC announcements, court cases and tribunal decisions; as well as some of the lesser known rules of the better known UK taxes.

Below, we’ve selected some highlights from this year’s BrassTax. We’ve included links below so that you can read any you’ve missed. (Rereading any you’ve forgotten is also encouraged.)

January

Double-bubble Gift Aid: its availability and its limitations

It will normally be more tax-efficient to give an asset to the charity than to sell the asset, pay Capital Gains Tax (‘CGT’) and gift the net proceeds.

In fact, it’s better even than this: it is acceptable for the charity to which the gift is offered to ask you to sell the asset on its behalf and send them the proceeds.  This (provided the paperwork is in order) is treated as gift of the asset rather than of the proceeds of sale, with Income Tax and CGT advantages.

Details – and a couple of caveats

 

February

The BADR oxymoron: activity can be passive

Deafening silences.  Open secrets.  Exact estimates.  And to the secular pantheon of oxymorons we added passive activities.

Dr Assem Allam’s case before the Upper Tribunal [2021] UKUT 291 (TCC) covered a number of discrete issues.  Our briefing looked at the question that arose in respect of what was at the time Entrepreneurs’ Relief but has subsequently been renamed Business Asset Disposal Relief (‘BADR’).

Bittersweet to have been given such clarity

 

March

SDLT: ‘Garden or grounds’ means what it says

The Court of Appeal in Hyman & Others v HMRC [2022] EWCA Civ 185 addressed a more ambitious argument that could potentially have greatly widened the scope for claiming the ‘non-residential’ rate of SDLT.

Why the Court of Appeal was dismissive

 

April

McEnroe & Newman: debt-free sale of company

We wonder what Michelle McEnroe and Miranda Newman thought when the decision was handed down in their case before the First-tier Tribunal [2022] UKFTT 113 TC. Possibly closer to ‘You cannot be serious!’ than ‘O brave new world that has such people in’t!’

How the Tribunal found in favour of HMRC

 

May

Wakelyn: more on CGT enhancement expenditure

CGT cases seem to come along like buses.  Hot on the heels (or wheels?) of McEnroe & Newman came another case about ‘enhancement’ expenditure, in The Wakelyn Trust v HMRC [2022] UKFTT 23 (TC).

If it was hard not to be sympathetic to the taxpayers in McEnroe & Newman, it is, it must be said, hard to disagree with HMRC’s arguments which were accepted by the Tribunal in Wakelyn.

An inventive and imaginative attempt to obtain tax relief; but never likely to find favour

 

June-July

Kavanagh and Entrepreneurs’ Relief: size matters…

…and so too does attention to detail.  That’s why the best tax advisers blend commercial awareness with a respect for precision that can seem to verge on pedantry.

In Kavanagh v HMRC [2022] UKFTT 173 (TC) one company (‘Holdings’) had acquired another (‘Egham’), paying for the purchase by an issue of its own shares: a completely routine kind of transaction.

The deal negotiated was that the shareholders in Egham would get 10% of the enlarged equity.  Mr Kavanagh held 50% of Egham so would end up with 5% of Holdings. However, the numbers weren’t nice convenient round figures.

Sometimes a bit of precision is worth its weight in gold

 

CGT changes: good news for separating spouses

In July 2022, HMRC published a number of items of draft legislation for inclusion in the next Finance Bill.  Among them were some helpful relaxations of the rules on marriage (or civil partnership) breakdown.

These rules will (assuming that they are enacted) have effect for disposals made after 5 April 2023 and may in some cases significantly reduce the tax costs of relationship breakdown.

The details

 

August

Murphy: tax implications of cost (non-)recovery

You successfully sue your employer for remuneration owed to you.  What you receive is usually taxable as earnings (there’s potentially a limited exception to the principle, but that’s for another day).  Anything that you recover as a contribution to your costs isn’t earnings and isn’t taxable.  But to the extent that you don’t recover costs and have to bear them yourself, you don’t get tax relief for them.  As tax concepts go, it’s not difficult.

In the case of Murphy v HMRC, the First-tier Tribunal (‘FTT’) got it.  The Upper Tribunal (‘UT’) didn’t.  The Court of Appeal set them right, in [2022] EWCA Civ 1112.

Were the claimants liable to tax on the full £4.2m or only on the lesser amount they actually received?

 

September

Harrison: the threshold for ‘deliberate failure’ to file

If a self-assessment tax return still not filed 6 months after it should have been, a penalty of 5% of the tax due (or a minimum of £300) is payable, with another 5% (or £300) if the delay reaches a year.  The 12-month penalty of 5% can be greatly uplifted (to a maximum of 200% in some circumstances) if ‘by failing to make the return, [the taxpayer] deliberately withholds information which would enable or assist HMRC to assess [the taxpayer’s] liability to tax’.

Thus the ‘super-penalty’ appears to require not just a failure to file the return but a positive decision not to do so. This was relevant in the case of Matthew Harrison [2022] UKUT 216 (TCC).

Why HMRC and the UT’s approach gives some cause for concern

 

October

It’s all foreign to me: CGT and non-sterling assets

This autumn was an apposite time to remind ourselves of how CGT deals with foreign currency and other non-sterling assets.

We explain the rules

 

November

SDLT and couples

If you already own a house (or other dwelling), the Stamp Duty Land Tax (‘SDLT’) you pay on buying another one is usually increased by an amount equal to 3% of the price you pay.

If you are married or in a civil partnership, the rule ‘reads across’ ownership between you and your spouse or civil partner.  But there is no similar treatment if you are merely cohabiting.  We considered some examples.

David and Ruth; Laura and Tommy; William and Kate

 

December

Whatever will be, Wilby: unidentified discoverers

The First-tier Tribunal case of Wilby v HMRC [2022] UKFTT 348 (TC) involved SDLT.  But the substantive question – the requirements for HMRC to make a valid ‘discovery’ permitting them to collect additional tax – is as relevant to Income Tax, CGT and Corporation Tax as it is to SDLT, and the case is worth examining for that reason.

‘A helpful summary of the state of the law’

 

We’re grateful to everyone who follows our BrassTax articles, be it via your inbox (new subscribers welcome), here on our website or as kindly republished in Tax Journal and ICAEW TAXline. We look forward to your company in 2023 as we continue to explore the complexities and surprises of the tax landscape.

By the way, we call it BrassTax because in it we aspire to strip away the complications of tax and deal with the practical details – to get down to brass tacks, in fact.

Ever wondered where the phrase comes from, though?  No-one seems entirely sure.  Our favourite is from the furniture business:  repairing upholstered furniture requires removal of the outer layers of fabric to get back to the structural webbing underneath – which is often secured by brass tacks.  But if any of you have a better suggestion – let us know!

Anthony Newgrosh

Partner, Head of Business Tax

T +44 (0)20 8922 9144
E anthony.newgrosh@bkl.co.uk

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