Analysis
During 1990 Mr Wagstaff’s mother (Barbara) bought a flat for herself to live in (the flat). On 6 January 1996 she sold the flat to the appellants for £45,000. It was agreed that this was an arm’s length price. The sale was subject to the terms of an agreement of the same date (the agreement). The agreement provided that Barbara was entitled to continue to live at the flat at no cost until her death or remarriage, subject to a payment of £5,000.
Barbara continued to occupy the property until August 2005 when an accident meant she could no longer do so. After some time in hospital she moved in with the appellants. The flat remained available to her and housing her property. In June 2006 she moved to a new more suitable property. The flat remained empty until it was sold with her agreement on 16 March 2007.
On the sale the appellants claimed relief from capital gains tax (CGT) on the increase in the proceeds of the flat’s sale under s225 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). The section extended principal private residence relief to settled property where the property was occupied by someone entitled so to do under the terms of the settlement. Settled property is defined by s68 of the TCGA 1992 as any property held in trust unless s60 of the TCGA 1992 applies to it. Section 60 refers to property held by a a bare trustee or nominee. The claim to relief was refused by HMRC.
The revenue submitted that the appellants had acquired full legal and beneficial title to the flat on 6 February 1996 and they had immediately granted Barbara a lease for life under the agreement. The agreement did not give rise to a trust. The flat was therefore not settled property for the purposes of s225 of the TCGA 1992.
The appellants submitted that they had subjected their absolute interest in the flat to a trust in respect of which the flat was settled property. The appellants noted that s68 of the TCGA 1992 did not define ‘property held in trust’. They noted that s42 of the Inheritance Tax Act 1984 meant that a lease for life was to be treated as settled property unless granted for full consideration. The appellants submitted that the lease was not granted at full market value. HMRC relied on this provision to show that such a lease was not usually settled property.
Held:
- 1) No particular form of expression is necessary for the creation of a trust if, on the whole it can be gathered that a trust was intended.
- 2) It was clear that the parties had intended the agreement to regulate their rights and obligations during Barbara’s lifetime. It did not seem likely that Barbara was ever supposed to be required to rely on the terms of the agreement against a third-party purchaser of the flat. Her position was to be secure in any eventuality. This would have been better achieved through the use of a trust rather than a purely contractual relationship.
- 3) In acquiring the flat in the terms included in the agreement, the appellants acquired as trustees for Barbara. They did not at that time become absolutely entitled to the flat and they did not have the exclusive right to direct how the flat was dealt with. Their interest in the flat was therefore settled property, being property held in trust other than that to which s60 of the TCGA 1992 applied.
4) It was undisputed that s225 of the TCGA 1992 applied in all other respects and the relief was therefore available to the appellants.
DECISION The issue [1] This is an appeal by Mr and Mrs Wagstaff (the appellants) against closure notices of 22 December 2011 and consequential amendments to their returns for the year 2006/07. The amendments increased the amount of capital gains returned for the year by £8,545 each. [2] The capital gain arose on the disposal …Continue reading "Wagstaff & anr v HMRC [2014] UKFTT 43 (TC)"