TT279: Does “Fairness” on taxable income only work in HMRC’s favour?

October 23, 2018

Recently, we have been reviewing the judgements handed down from Tribunals regarding two similar cases involving partial surrenders of life insurance policies.

The first, Joost Lobler v HMRC [2015] UKUT 0152 (TCC) presented a situation where an elderly taxpayer had invested his life savings before he subsequently partially surrendered them in 2 tranches. The effective tax rate was calculated as 779% on the profit generated.

The Upper Tier Tribunal found in Mr Lobler’s favour by applying the doctrine of rectification – Mr Lobler had made a mistake in choosing partial instead of full surrender and his mistake was sufficiently serious to warrant rescission and rectification.

This led to Finance (No 2) Act 2017 (FA2017) introducing a measure to provide relief from an excessive gain in these circumstances.

A welcome piece of assistance for the taxpayer!

However, when looking at the case of Thakoral Tailor v HMRC [2017] UKFTT 0845 (TC), where again an elderly taxpayer had chosen partial surrender of life policies, HMRC were pursuing full payment of taxes and penalties.

The HMRC’s presenting officer (and her supervisors) appeared to have no knowledge of the amendments brought in by the FA2017 and were intent on having Mr Tailor’s appeals struck out. HMRC’s applications were granted due to procedural and timing errors by the taxpayer, but the Tribunal Judge, who had made her own investigations into areas surrounding the case, including that of Mr Lobler, had significant concerns about enforcement action being taken against Mr Tailor.

The FTT noted that HMRC could opt to recalculate the tax take on a more just and reasonable basis. Further the Tribunal Judge noted that the taxpayer had not given any submission to the Tribunal to allow an appeal under the powers conferred on it – they were literally powerless to formally help him, regardless of their opinions on the case.

So where does this leave us?

HMRC are tasked with raising the overall tax take from the tax payers of this country and will look on situations in that light. They may quote guidance from the HMRC manuals, but this is HMRC’s interpretation of the taxpayer’s case and not fact – that can only be deduced by reference to the law, as enacted by parliament.

If you are facing action from HMRC in respect of taxes, penalties and interest, then being properly advised can make a significant difference to the proceedings of cases and any ultimate liability due.

Always discuss matters with your tax advisor at Barnes Roffe LLP.

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