Property investors Amanda Dalgety and John Day tried to convince a tax tribunal that they had no capital gains tax to pay on selling three homes after HM Revenue & Customs (HMRC) accused them of carelessly filling in their tax returns.
Appealing the HMRC assessment of £9,324, the tribunal was told Day completed the returns for both of them and declared they had no CGT to pay, even though he had no knowledge of CGT and had only made some rough calculations that he thought proved they were not ‘viable’ property transactions.
Dalgety told the Judge Rachel Perez that she had only glanced before signing her tax return that was drafted by Day.
The couple sold three houses in the tax year 2006-07, claiming two were buy to lets and one was bought with the intention of becoming Day’s main home after he had moved out of a fourth property where he had lived with Dalgety after a row.
The first buy to let was bought for £99,500 in April 2005 and sold for £114,995 in August 2006.
The couple believed no capital gains tax was due because they wrongly worked out the purchase price as £15,175 and the sale price as £28,941 after deducting a mortgage, early redemption fees and loan interest from the acquisition and disposal costs.
CGT legislation does not allow these deductions.
A similar flawed calculation was used to work out the tax due on the second buy to let, purchased for £47,000 in February 2005 and sold for £66,300 in January 2007.
The third property cost the couple £70,000 in June 2006 and was sold for £91,000 in August the same year after a refurbishment costing £3,522, of which the tribunal decided £1,200 spent on painting and decorating was a repair, not a capital cost.
Day claimed private residence relief against this home, telling the tribunal he intended to move in after the refurbishment but decided not to after reconciling and moving back in with Miss Dalgety.
However, the property was purchased in joint names and Day could provide no evidence to show he had ever lived at the property as his main home.
The tribunal considered the evidence from the couple was unreliable and dismissed the appeal.
In a 39-page ruling, the judge ordered Day should pay£2,657 CGT and £398 for carelessly filing his tax return on a net chargeable gain of £13,285, while Dalgety, a higher rate taxpayer should pay £5,314 CGT and a penalty of £797.
The penalties were reduced by £53 for Day and £105 for Dalgety by the judge.