HOW WOULD YOU REACT if you heard that the police had just prosecuted a motorist for driving through a green light? With incredulity? Me too.
Yet that is just what happened, in the tax world, in the recent first-tier tribunal case of Ellis  UKFTT 003 (TC).
The facts are straightforward.
Ellis owned a residential property for about six years. For the first five years or so, the property was let, but she then decided to occupy it, before selling it a few months later. As was her right, she submitted an election known as a “principal private residence election”, nominating the property concerned as her main residence.
Taxpayers often misunderstand the fact that any property can be the subject of a principal private residence election and it is well established that a property has to be a residence before it can be a main residence, whether by fact or by election. HMRC’s initial position was that the property was not, in fact, used as a residence by the couple.
However, by the time the case came to a hearing, HMRC had accepted that the property was used as a residence. The point in dispute was whether its occupation was sufficient to deem it as a main residence.
The wording of the principal private residence election is clear and unambiguous. It allows the taxpayer to “conclude [the] question” of which of two residences is a main residence by an election. Yet here was a senior officer of HMRC arguing that the election was not important and one had to consider the quality and degree of occupation.
Fortunately, the tribunal judges found for Ellis and gave HMRC a bloody nose in the bargain, carefully explaining the law to their representative. But the case is illustrative and worrying.
In the first case, this matter should never have got near to the doors of a tribunal. The HMRC officer concerned may have made a mistake but where was the internal review procedure?
More worryingly, what would have happened, had the boot been on the other foot? Ellis doubtless suffered significant cost and anguish. Where is her recompense? HMRC is continually penalising taxpayers for what it calls carelessness or neglect, expecting them to understand hugely complex legislation and levying draconian penalties if they do not. Yet HMRC professionals appear to be able to do the same, protected from the consequences and certainly without their own pockets at risk.
Shouldn’t interest and penalties be “symmetrical”, with the taxpayer being entitled to claim the same amounts for HMRC’s carelessness and neglect that they are exposed to?
But does this case also illustrate an even more sinister trend?
The law in this case allows taxpayers to elect (for tax reasons) for one property to be their “main residence”, even though, in fact, it is not. Did HMRC mistake the government’s constant calls for taxpayers to pay “the right amount of tax” as a green light to bring a case because it thought it was “not fair” – even though the law is unequivocal on the point?
Andy White is a tax partner at accountancy firm, Carter Backer Winter LLP (“CBW”)
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