Jackson v Revenue and Customs (CAPITAL GAINS TAX/TAXATION OF CHARGEABLE GAINS : Other)

Factual and Procedural Background

The Appellant left the UK in January 2013 and became resident in the Isle of Man. Following changes in UK capital gains tax law effective 6 April 2015, non-resident disposals of UK property were required to be reported to HMRC within 30 days of sale via a Non-Resident Capital Gains Tax (NRCGT) return. Previously, such disposals were reported only on the annual tax return.

The Appellant disposed of two properties in Liverpool: one on 18 May 2015 and another on 1 September 2015. The NRCGT returns for both properties were submitted late, received by HMRC on 2 October 2016, declaring no capital gains tax due.

HMRC issued eight penalty notices dated 21 November 2016 totaling £3,200, including fixed penalties and daily penalties for late submission. Subsequently, HMRC withdrew the daily penalties amounting to £1,800, leaving £1,400 outstanding. The Appellant appealed against these remaining penalties.

The Tribunal determined the appeal on 28 November 2017 without a hearing, having considered the Notice of Appeal, HMRC's Statement of Case, and the Appellant's reply.

Legal Issues Presented

1. Whether HMRC correctly addressed and notified the penalties to the Appellant.
2. Whether HMRC correctly applied the penalty legislation and calculated the penalties.
3. Whether the Appellant had a reasonable excuse for the late submission of the NRCGT returns.
4. Whether special circumstances exist that would allow HMRC to reduce the penalties and whether HMRC's decision on special circumstances was flawed.
5. Whether the penalties imposed are disproportionate, harsh, or unfair.

Arguments of the Parties

Appellant's Arguments

• The Appellant accepted the returns were late but was unaware of the legislative change introducing the 30-day submission deadline effective 6 April 2015.
• He intended to comply by submitting the annual tax return electronically by 31 January 2017 and only became aware of the new requirement during a meeting with his accountant in October 2016.
• The penalties were disproportionate and did not reflect his prior compliance history.

HMRC's Arguments

• Returns were not submitted within the statutory 30-day deadline and penalties were correctly levied under Paragraphs 1, 3, 4, 5, and 6 of Schedule 55 of the Finance Act 2009.
• The legislative change was publicly announced in December 2014 and detailed guidance was published before the Appellant’s first disposal.
• The Appellant had an obligation to keep informed of relevant tax legislation and exercise reasonable foresight and due diligence.
• There was no reasonable excuse for the late submissions as ignorance of the law is generally not accepted as such.
• No special circumstances existed to justify reduction of penalties, although HMRC exercised discretion to withdraw daily penalties.
• Penalties are not plainly unfair or disproportionate as statutory provisions provide for reasonable excuse and special circumstances.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal first accepted that the Appellant was correctly notified of the penalties despite no copies of penalty notices being in the bundle, relying on correspondence and internal HMRC records.

Regarding penalty calculation, the Tribunal found that the fixed penalties of £100 for each late return were correctly applied. However, the Tribunal determined that the six-month and twelve-month penalties of £300 each were incorrectly imposed because the Appellant had no capital gains tax liability, and under Schedule 55 paragraph 17(3), the aggregate penalties determined by reference to tax liability cannot exceed 100% of that liability, which was nil. Therefore, these penalties should not have been levied.

On reasonable excuse, the Tribunal acknowledged the Appellant’s genuine intention to comply and his unawareness of the legislative change. However, following established case law, it concluded that ignorance of the law does not constitute a reasonable excuse.

Regarding special circumstances, the Tribunal referred to the Welland case, where multiple penalties issued simultaneously prevented the taxpayer from learning from mistakes. Similarly, the Appellant received eight penalties on the same day for two failures, denying any opportunity to correct behavior. The Tribunal found HMRC’s decision that no special circumstances existed to be flawed in respect of the second disposal and reduced that penalty to nil.

Finally, the Tribunal emphasized that penalties are statutory and can only be adjusted if incorrectly applied or calculated. It cannot exercise discretion to reduce penalties on grounds of perceived unfairness.

Holding and Implications

Holding:

• The appeal is dismissed in respect of the fixed penalty of £100 for the first property disposal, as the Appellant had no reasonable excuse and no special circumstances were found.
• The appeal is allowed in respect of the fixed penalty for the second property disposal due to the existence of special circumstances, reducing that penalty to nil.
• The appeal is allowed in respect of the six-month and twelve-month penalties of £300 each for both properties, as HMRC incorrectly imposed these penalties contrary to Schedule 55 paragraph 17(3).
• HMRC’s withdrawal of daily penalties is noted; those penalties remain cancelled.

Implications: The decision directly affects the penalties payable by the Appellant, reducing the overall penalty amount. It confirms the strict application of penalty legislation, particularly the aggregate penalty cap relative to tax liability, and recognizes special circumstances where multiple penalties issued simultaneously prevent taxpayer learning. However, the Tribunal does not establish new precedent beyond applying existing case law and statutory interpretation.