FTT overturns UK income tax and CGT charges on three renovations in five years
Gary Ives and his wife renovated the London properties between November 2008 and December 2013. HMRC assessed him for income tax on the proceeds, stating that his activities had the hallmarks of a property development trade ('badges of trade') so that the gains were taxable as trading profits.
Ives appealed to the First-tier Tax Tribunal (FTT), claiming that the property dealings were no more than normal domestic transactions. He had amassed a considerable amount of evidence in support of this proposition. Ives was born in London, and he and his wife decided in 2008 to move out of the city and into the suburbs. But the onset of the banking crisis and ill health in their family forced them to move house several times in quick succession, as well as doing a significant amount of work on each property to meet their individual requirements. Ives argued that it was family and financial issues that led to the frequent changing of houses and not the desire for trading profits, although he did not deny the moves generated a profit. He also presented several witness statements supporting his account of why he had bought and sold the properties and the nature of his occupancy. It was also relevant that although he was a builder by profession he worked on a smaller scale rather than on large renovation projects.
Moreover, the evidence showed that all three homes were used as family homes and each house was furnished and occupied with the intention of residency being permanent.
The FTT judges accepted Ives' narrative, although they noted that it contained some inconsistencies. Ultimately, it ruled that he was not carrying on a trade and that the properties were family homes subject to CGT. Since they were his main residences, he was entitled to full private residence relief from CGT.
The FTT was critical of HMRC’s case. The hearing had already been deferred from April 2022 due to 'inadequate marshalling of evidence' by HMRC at the time, said the FTT. 'In a case where the total amount in dispute is nearly GBP1 million, we would expect HMRC to take more care in preparing the hearing bundle and making sure that it contains all relevant material properly arranged, particularly so when their failings had already been pointed out to them some months previously by a judge of this Tribunal’, it said (Ives v HMRC, 2023 UKFTT 968 TC).
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