HMRC failed to act on the information and guidance
17. Mr D told us that having told HMRC that he believed PRR was applicable and referred to the HMRC guidance on the matter, he could not understand why HMRC failed to accept that position in 2020/21. He explained he had sent HMRC a copy of the Deed of Trust that was pertinent to the property and when consulted, the Tax Counsel said the matter was ‘a simple case.’
18. It is not within the remit of our Office to determine whether PRR was applicable to the transaction that took place with Mr C’s property and the associated trust. Our role is to consider whether HMRC acted on the information available to it. In this case, this means did it consider Mr D’s assertion that PRR likely applied in this case and the evidence he provided to support that.
19. We have examined the evidence of what actions HMRC took in response to the information Mr D gave it and in reference to its guidance on PRR. We should note that the enquiries by the caseworker were two-fold in that they were trying to establish if CGT was due as well as see whether there was a case to make that Mr C had been careless in his late disclosure. These enquiries are known as Discovery Assessments. HMRC has guidance on how to carry out an assessment in its Enquiry Manual Section EM3200. It is important to note that there are time limits for these assessments, the Enquiry Manual says:
Normal Time Limit
The normal time limit for making a discovery assessment is 4 years after the end of the relevant tax period.
Extended Time Limits
The time limit is extended to 6 years where the discovery assessment behaviour linked to the loss of tax was caused by carelessness by the taxpayer or a person acting on their behalf.
20. In March 2020, an HMRC caseworker sought advice from their Capital Gains (CG) specialist team. They received that advice in September 2020. The specialist stated that the position was complex, but in their opinion there were good reasons why the PRR position was invalid and ‘could effectively be ignored for the purposes of calculating the CG due when the property was gifted.’ HMRC told Mr D in October 2020 the decision that additional CGT was due. Mr D went on to say he would appeal that decision on behalf of Mr C.
21. In October 2021, Mr D appealed the decision and after a discussion with HMRC in December 2021 the appeal was declined. Mr D said he would need to seek legal advice.
22. When calculating CGT, HMRC sometimes needs to get accurate property values. To do so, it follows its Valuation Office procedures in its Capital Gains Manual Section CG74300. The Valuation Office (VO) gives the government the valuations and property advice needed to support taxation and benefits. HMRC got a valuation of the property concerned which it shared with Mr D.
23. When he questioned why it was different to the valuation Mr C had originally submitted, he was told that HMRC could arrange for the VO to contact him directly. However, Mr D told HMRC that Mr C was going to seek an independent valuation and was also going to get Tax Counsel advice on PRR.
24. Mr C’s Tax Counsel provided HMRC with a full analysis of the transactions that had occurred and the tax impact these led to in March 2023. The caseworker made a final referral to the CG team to confirm if their position remained the same and to let them see the more detailed analysis the Tax Counsel had provided. They raised further questions about the establishment of Trusts and what this would do to the CGT position.
25. The caseworker discussed the matter with the specialist and concluded that the matter remained complex and nuanced and would eventually be based on a detailed analysis of the various trusts and leases by HMRC’s CG specialists. They recommended that the discovery assessment which had been started in 2021 be withdrawn as there was little likelihood of HMRC being able to charge a careless penalty and the assessment therefore had exceeded the normal time limit. This is in line with the guidance in the Enquiry Manual.
26. HMRC told us and Mr D in its December 2024 letter that it reached a decision not to pursue CGT from Mr C. It withdrew the assessment on the basis that there was insufficient evidence to show Mr C had been careless and not on the acceptance that PRR applied.
27. Our Principles of Good Administration say:
‘Decision making should take account of all relevant considerations, ignore irrelevant ones and balance the evidence appropriately.’
28. We can see from the evidence that HMRC explored the matter of PRR using its CG specialists, sought additional information from Mr D and then examined the position taken by Mr C’s tax counsel. It concluded that it should not continue the assessment and wrote to Mr C and Mr D to tell them that was the case in August 2024.
29. We can appreciate that Mr D found it incredibly frustrating not to get a decision on the PRR question. We are sorry to hear that.
30. The evidence shows HMRC has acted in line with its guidance and our Principles in this aspect of the complaint and there are no indications of maladministration.
Incurred unnecessary costs and wasted time
31. Mr D told us that Mr C sought a second property valuation when HMRC presented him with evidence of the valuation it had received which was higher than the one he had previously given to HMRC. He said that it should never have got to the point where this was necessary and so HMRC should reimburse the costs to him of getting the valuations.
32. Mr C made the decision to seek an independent valuation as he did not agree with the one that HMRC said it would use if CGT was levied. While we understand Mr C’s position and intent, there is no evidence that HMRC told Mr C he needed to get an independent valuation or made errors when it sought a valuation from the VO.
33. The decision to seek advice from tax counsel was also a decision taken by Mr C to provide evidence for his and Mr D’s position that PRR was applicable. As we have previously shown, there was no resolution to the question of whether PRR applied or not so we cannot say that Mr C’s decision to get that advice was as a result of any errors on the part of HMRC.
34. We acknowledge that Mr D believes the matter should have been addressed well before the need for valuations and tax counsel input was needed. We have already shown that HMRC carried out its consideration in line with its guidance and Mr D accepts that once it was clear it was not going to accept PRR applying in the early stages of the assessment then delays were a shared responsibility between himself and HMRC. He has not complained about that period.
35. HMRC’s guidance on paying professional fees incurred by a taxpayer can be found in its ‘Complaints and Remedy Guidance.’ In that, it says:
‘Customers can claim reimbursement of costs they have paid, including fees they have paid to their professional agents, if they are additional costs as a direct result of our mistake or unreasonable delay.’
36. The evidence shows that we have not identified any mistakes or delays on the part of HMRC that would have led to Mr C incurring any unnecessary costs. While we recognise Mr D’s differing view, we find no indications that anything went seriously wrong. Therefore, we will not consider this further.
Felt bullied by HMRC
37. Mr D told us he felt bullied by HMRC when it failed to accept what he was telling it, and Mr C had to resort to paying for tax counsel. The large amounts of CGT being demanded put an unnecessary feeling of responsibility on Mr D.
38. We are sorry to hear Mr D felt that way. An assessment is likely to be a challenging and stressful event especially for the representative who is the intermediary between the client and HMRC. When HMRC did not accept Mr D’s position on PRR he felt his professionalism was being undermined and this reflected poorly on him. We can appreciate that he would have liked to have had the matter addressed without the needs for Mr C to seek assistance from tax counsel and it must have been frustrating when counsel supported the position Mr D had taken on PRR. The differing opinion on PRR was explored but not resolved as we have shown. Also, as highlighted above, HMRC was investigating the matter in line with our Principles as it had to establish the facts before making a decision.
39. The HMRC Charter says ‘We’ll always treat you in line with our values of respect, professionalism and integrity.’ We have reviewed the communications between Mr D and HMRC and have not seen any evidence of language or behaviours that we would consider not to be in line with its Charter. Therefore, we will not take any further action.