Investors making important financial decisions which may put large sums of money at risk cannot rely on the tax man for help to organise their finances.
A ruling by the First Tier Tribunal, a specialist court adjudicating tax cases, has made clear that any information provided by HM Revenue & Customs (HMRC) should not be considered as accurate.
The verdict came in the case of Karen Rotberg v HMRC who argued that failing to properly declare capital gains on the sale of £4.2 million of shares in online businesses Jobsite and Auto Online has left her with a large tax bill.
Ms Rotberg asked her accountant for advice about reinvesting most of the proceeds in another business to minimise her capital gains bill.
The tribunal heard that her accountant called an HMRC tax inspector to talk through the case.
Confused and negligent
Both were confused about the capital gains tax reliefs available under the circumstances.
The accountant asked if ‘roll-over relief’ was available and the inspector agreed.
However, Ms Rotberg should have applied for deferral relief instead, and by the time she found out, the window for the claim had closed, leaving her with a hefty capital gains tax bill.
The tax tribunal judge decided the tax inspector had no idea he was making a considered ruling and could not be held responsible for the advice given.
Instead, the accountant was blamed for failing to check out the tax rules for reinvesting the proceeds of share sales and not passing the case onto to a better qualified professional.
The tribunal indicated that they felt the accountant was negligent in his handling of the case.
No jurisdiction
Ms Rotberg also argued she had a legitimate expectation that she could have saved tax if she had not been given incorrect advice.
The tribunal declined to consider this point as they felt the matter was outside their jurisdiction.
What this decision means to taxpayers is that they cannot rely on guidance from HMRC publications, manuals, helplines or tax inspectors unless the information comes with a caveat saying the content is a considered ruling.
This is the latest in a string of cases before the courts that have decided HMRC’s guidance is just an interpretation and has no force in law.
These cases led to a redefining of the residency test and an overhaul of tax rules affecting Qualifying Recognised Overseas Pension Schemes (QROPS).
