MARK CAMPBELL v Revenue & Customs (CAPITAL GAINS TAX - Whether dwelling houses were purchased as part of a trade or venture)

Factual and Procedural Background

The Appellant appealed against discovery assessments issued under sections 29 and 36 of the Taxes Management Act 1970 (TMA), as well as a Closure Notice issued under section 28A TMA, relating to the tax years 2012-13, 2014-15, and 2015-16. The assessments concerned income tax or Capital Gains Tax (CGT) in the alternative. Additionally, the Appellant appealed against penalties issued pursuant to Schedule 41 of the Finance Act 2008 for failure to notify liability to tax.

HMRC became aware that the Appellant had bought and sold four properties between 2010 and 2015. HMRC requested self-assessment returns and further information, disputing the Appellant's claim that some properties were Job-Related Accommodation (JRA) and that he intended to occupy them as his main residence. The Appellant submitted a 2015-16 tax return and provided explanations and evidence through agents.

HMRC issued discovery assessments, a Closure Notice, and penalties after concluding that the Appellant's activities constituted trading or capital gains not exempted by Principal Private Residence Relief (PRR). The appeal was determined on the papers without a hearing.

Legal Issues Presented

1. Whether there was a discovery justifying the discovery assessments for 2012-13 and 2014-15.
2. Whether HMRC correctly issued a Closure Notice for 2015-16.
3. Whether the Appellant's repeated property transactions amounted to an adventure in the nature of trade (income tax) or capital gains subject to CGT.
4. If trading, what was the profit for income tax purposes.
5. If capital gains, whether the gains were exempt under section 222 of the Taxation of Chargeable Gains Act 1992 (TCGA) due to PRR.
6. Whether the Appellant resided in Job-Related Accommodation (JRA) for the purposes of deemed occupancy under section 222(8) TCGA.
7. Whether penalties under Schedule 41 were correctly applied, including whether there was a failure to notify tax liability, if there was a reasonable excuse, and whether the failure was deliberate or non-deliberate.

Arguments of the Parties

Respondent's Arguments (HMRC)

• The Appellant's purchase, refurbishment, and sale of four properties over a short period bore the hallmarks of trading, making income tax chargeable under section 5 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA).
• The properties were left empty during refurbishment and sold at a substantial profit, indicative of a trade rather than private occupation.
• The Appellant did not reside in Job-Related Accommodation (JRA) as defined by the legislation.
• There was insufficient evidence to support the expenditure claims made by the Appellant, which were largely estimated and unsupported by invoices.
• In the alternative to trading, the gains were capital but not exempt under PRR because the properties were not the Appellant's main residence.
• The penalties were justified on the basis of deliberate failure to notify liability, with reductions applied for disclosure and cooperation, resulting in a penalty of 45.5% of the tax due.

Appellant's Arguments

• The Appellant denied trading status and asserted that the properties were purchased with the intention to occupy as his main residence.
• Photographic evidence of pets, family, furniture, and a statement from a neighbour were submitted as proof of occupancy.
• The Appellant claimed to reside in JRA due to his employment as a full-time carer for his father, requiring him to live at his parents' home.
• The Appellant disputed the penalties and sought acceptance of his expenditure figures.
• His agents contended that the Appellant was more a DIY homeowner than a trader and requested that the sales be treated as capital gains eligible for PRR.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal considered whether the Appellant's activities constituted trading or capital gains. It applied established legal principles, notably the badges of trade, to the facts of four property transactions over a short period. The Tribunal found that although the Appellant made profits and undertook refurbishment, the overall evidence did not support a finding of trade. The Appellant was not engaged in an existing trade nor had he demonstrated systematic trading activity. The properties were modified and sold for profit, but this was consistent with capital gains activity.

The Tribunal examined the Appellant's claim of residing in Job-Related Accommodation (JRA). Despite medical evidence confirming the father's condition, the Tribunal found no evidence that the Appellant's residence at his parents' home was provided by reason of employment. The Tribunal concluded the Appellant was living in the family home, a family arrangement, not JRA.

Regarding Principal Private Residence Relief (PRR), the Tribunal applied the ordinary meaning of residence, requiring permanence and continuity. The Tribunal found the Appellant did not intend any of the properties to be his main residence, noting inconsistencies, lack of documentary evidence, short occupation periods, and that properties were placed on the market shortly after refurbishment. The Tribunal applied relevant case law confirming that temporary occupation does not amount to residence for PRR.

The Tribunal held that discovery assessments were validly issued for 2012-13 and 2014-15, as the Appellant had failed to submit returns and notify tax liability despite HMRC being aware of the transactions. The Closure Notice for 2015-16 was also correctly issued following an enquiry. The burden of proof rested on the Appellant to show the assessments were excessive, which was not discharged.

On penalties, the Tribunal agreed with HMRC that the Appellant's failure to notify was deliberate, supported by the Appellant's own email indicating awareness of CGT implications. The lack of evidence for expenditure claims and failure to keep records further supported HMRC's position. The penalty level was upheld as appropriate.

Holding and Implications

The Tribunal DISMISSED the appeal in its entirety.

The discovery assessments for the tax years 2012-13 and 2014-15, the Closure Notice for 2015-16, and the penalties issued under Schedule 41 were all upheld. The Appellant was assessed to Capital Gains Tax on the gains from the sale of the properties, with no relief under Principal Private Residence Relief, and found not to be trading for income tax purposes. The penalties for failure to notify were confirmed as properly applied on the basis of deliberate behaviour.

No new legal precedent was established; the decision applies established principles of tax law relating to trading status, residence for PRR, and the burden of proof in discovery assessments and penalties.