The First-tier tribunal has allowed an appeal against a late filing penalty for a non-resident capital gains tax return. The tribunal found that a taxpayer does not have an obligation to keep up with the law. The taxpayers’ ignorance of the law was a reasonable excuse as HMRC had led them to believe that they could declare the disposals in their self-assessment tax returns.
The case involved a married couple, Mr and Mrs Kirsopp, who had been resident outside the UK since 2003, but who had retained residential property in the UK. After hearing of proposals to introduce a charge to capital gains tax on the sale of UK residential property by non-residents, they phoned HMRC to see if the charge would apply to them on the sale of their former main residence in the UK. They were told that it would and that they should report it on their self-assessment tax return. They sold their former main residence in July 2015 and two other UK properties in March and August 2016. They only became aware of the need to file a non-resident capital gains tax return (NRCGT return) and the need to make a return within 30 days in August 2016 when providing tax return details to their accountant. A NRCGT return in respect of all three properties was filed in September 2016. HMRC charged a late filing penalty.
The taxpayer appealed contending that their ignorance of the law was a reasonable excuse. Income from the properties was included on their self-assessment returns submitted to HMRC’s centre for non-residents, and it was reasonable to assume disposals should also be reported on the return.
HMRC contented that ignorance of the law was not a reasonable excuse and that the taxpayers had an obligation to stay up to date with the law.
The tribunal found in favour of the taxpayers.
This case illustrates that taxpayers who are ignorant of the law may have a reasonable excuse where they have relief on HMRC guidance, particularly where the failure is remedied promptly when it came to light.
Written by the Tax Advice Network