Kamran
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 April 2019 |
| Neutral Citation | [2019] UKFTT 257 (TC) |
| Date | 09 April 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 257 (TC)
Judge Richard Thomas, Susan Stott
The appellant appeared in person
Mr Tony Burke, litigator, HM Revenue and Customs, appeared for the respondents
Income tax – Income from property – Rents under tenancy agreement – Whether discovery assessment validly made – Yes for 3 years – No for 2 others – Whether loss of tax – Whether relief for interest available – Whether tenancy agreement a sham – Yes – It was entered into only to deceive council into paying housing benefit – Appeals allowed.
[1] This was an appeal by Mr Mohammed Kamran (“the appellant”) against five assessments made on him by an officer of the respondents (“HMRC”) in respect of income to which he was said by HMRC to be entitled or which he received from a business of exploiting his interest in a house in Otley St, Halifax as a source of rents or other receipts.
[2] We had one large bundle of documents prepared by HMRC containing over 800 pages. More than half of these had been supplied by the appellant, and of those about three quarters did not relate to the periods or issues in these appeals. But what we had noted in our reading of the papers before the hearing was the absence of what had clearly been crucial documents on which HMRC had relied to produce their case and which they had obtained from Calderdale Metropolitan Borough Council (“the council”), the local authority for the Halifax area. We had also noted that the appellant had disputed the authenticity of one document in particular which he was alleged to have been a party to and to have signed, but which HMRC had refused to supply to him on data protection grounds.
[3] We had decided before the hearing started that if this was still the situation then, subject to hearing argument from HMRC, we would allow the appeals forthwith. Shortly before the hearing was due to start our clerk did however give us a small bundle containing the relevant documents, which Mr Burke for HMRC had given to the appellant on arrival at the tribunal building.
[4] At the start of the hearing we invited Mr Burke to make an application for these documents to be admitted late, as the relevant directions had required them to be produced before then. Mr Burke explained that on reviewing the papers he had realised that the Tribunal might well take the view that we would throw out HMRC's case and had made efforts to persuade the “data guardians” for the relevant office of HMRC that the documents were vital and could and should be disclosed. This he had managed only the day before.
[5] We decided to admit the documents as they were clearly highly relevant to the appeals and there was a good explanation for the delay. However we, and Mr Burke, were of the view that there was no good explanation at all for the data guardians' attitude. They were, it seems, unaware of s 18(2)(c) Commissioners for Revenue and Customs Act 2005 or s 35 Data Protection Act 1998 or paragraph 5 Schedule 2 Data Protection Act 2018 (which came into force on 25 May 20181).
[6] The appellant gave oral evidence. As he was not represented and his oral evidence was likely to be highly important, the Tribunal helped him lead his evidence by asking him the kind of open questions that a representative acting for him would have been permitted to ask. Mr Burke also cross-examined him.
[7] On 10 December 2015 HMRC opened an enquiry into property held by the appellant over a period of years. Their focus was on both possible “capital” gains from disposal of properties and on rents received from them. The letter enclosed a number of pre-printed forms on which the appellant was invited to give detailed reports of his income from property for the years 2009–10 to 2014–15 inclusive, and ownership history for each property owned and his reasons for non-declaration of the income.
[8] The forms also include one applicable to a recipient who did not own or had not owned property from which rental income was received. Such people were required to state all the circumstances
whereby you have received income from rent on behalf of a third party including any fees charged or non-monetary required for services given
and
to state (sic): provide me with the full name and address of the legal owner of the property you collected rent for coupled (sic) with the address of the property in question.
[9] There was a note about record keeping. We stress here in view of the arguments put to us that this note includes:
If you let out residential property you will have to keep records of rent received
and
The expenses you can deduct from letting income … include … interest on property loans
[10] Finally there was a factsheet about penalties for failure to notify.
[11] There followed some declaration of liability from income from property to be returned in a 2015–16 return and some details about other property transactions, and eventually on 12 May 2016 Mr Phillips, HM Inspector of Taxes, issued a Schedule 36 FA 2008 notice for information about all properties owned in the appellant's sole name or jointly with his wife since 6 April 2001.
[12] On 7 June 2016 a comprehensive letter was sent in reply by the appellant. The relevant information for the purposes of this appeal is that the appellant referred to 11 Otley Street, Halifax (“Otley Street”) as being a property owned by him in his sole name, that he purchased it in September 2010 and enclosed as an appendix 22 pages of correspondence including documentation from solicitors about the purchase; about the divorce of his sister Miss Shamim Akhtar; his sister's purchase of 11 Otley Street from him; and about marital issues between the appellant and his wife. He also explained that Otley Street had been purchased by him as there had been problems in his marriage; that Miss Akhtar had separated from her husband so that Otley Street was purchased for his sister to live in and if necessary he would live in it too if his marital problems meant that it was necessary. He had sold Otley Street to Miss Akhtar in September 2015 and had, he said, got no financial gain from the property.
[13] On 7 July Mr Phillips replied to the effect that he had information which appeared to be correct that the appellant had received payments as a landlord for several years in respect of Otley St and asked the appellant to consider the statement carefully.
[14] On 16 July 2016 the appellant gave further information about Otley Street. He explained that his wife was his first cousin, his wife's father and his own late father were brothers and his wife's mother and his2 mother were sisters. His marriage was arranged and took place in Pakistan 8 days after he met his wife for the first time, and that they had a joint wedding with Miss Akhtar and Mohammed Shazad, his wife's brother.
[15] Miss Akhtar and Mr Shazad had marital difficulties and in 2009 Mr Shazad said he wanted a talaq, or Islamic divorce. The appellant said that his parents, his sister Miss Akhtar and his siblings put him under immense pressure to give a talaq to his own wife to effect reciprocity as a loyal brother and son. In January 2010 Mr Shazad gave a talaq to Miss Akhtar. The appellant enclosed letters explaining his own marital difficulties.
[16] He also said that his other sister Kuser Parveen was selling her house in Otley Street, and as his parents and siblings wanted stability and security for Miss Akhtar and her two children they asked him to buy Otley Street on Miss Akhtar's behalf.
[17] This was because she could not get a mortgage on her income, and so his parents and siblings proposed to fund the deposit for Miss Akhtar and asked him to get a mortgage.
[18] Accordingly Otley St was purchased for £55,000 from Kuser Parveen, his sister (he provided the solicitor's documentation). He obtained a mortgage of £40,000 from Halifax in August 2010 (he provided the documentation), and the balance of £15,000 was funded by Miss Akhtar, siblings and extended family (he apologised for not having specific details).
[19] His family said they would take responsibility and pay for the mortgage. He gave his debit card to Miss Akhtar for a Halifax account and enclosed the bank statements for this. He said all payments were deposited by Miss Akhtar, and that payments were made to the Halifax for the mortgage and to Homeserve for boiler/water cover and to LV for buildings insurance.
[20] As to the sale of the property he enclosed solicitor's correspondence and other documents to show the valuation of £60,000 given by the surveyor for NatWest, who were then to lend to Miss Akhtar; that Miss Akhtar did not pay a deposit; that she borrowed £33,000 from NatWest; that the balance on his mortgage then was £32,400 and that the cash in the Halifax account afterwards was £652.73 so that the money borrowed by Miss Akhtar was used to repay his outstanding mortgage debt. The balance of £27,000 of the purchase price due from Miss Akhtar to him was treated as a gift of £27,000 from him to her (and he enclosed solicitor's and bank documentation to show this).
[21] He said that therefore he had made no financial gain and that the Halifax account in his name had never been used for him or his own household.
[22] On 27 July 2016 Mr Phillips replied. He reiterated that he had received information under “sect 16 TMA 1970”3 that the appellant had received payments as landlord for several years. As the appellant had said he was “the mortgagee” (sic) and that the Land Registry information (given by the appellant) indicated that he was the owner, any income received was assessable on him, and that he would shortly issue assessments under “sect 29 TMA 1970” to “protect the department's interest”.
[23] He accepted though that any capital gain was covered by the appellant's personal allowances4.
[24] “Shortly” turned out to be the same day as notices of assessment dated 27 July 2016 were in the bundle5. There...
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