Analysis
Prior to his death on 11 May 2010, the deceased had bought £25,000 of shares in two companies and made a loan of £334,784.00 to a third company. It was accepted by HMRC that by 5 April 2010 the shareholdings were of negligible value. The loan to the third company had become irrecoverable as of 3 November 2009. The deceased’s 2009/2010 tax return was submitted by the appellants who were the deceased’s executors. Capital losses of £384,784.00 were reported and a claim to offset £40,000 against the deceased’s income was made. It was accepted by HMRC that the deceased would have been able to successfully offset these losses against his income and capital gains tax liability had he submitted the return himself.
Within the return, the appellants had claimed relief on the loss of the shares under s131 Income Tax Act 2007 and on the loan under s253 Taxation of Capital Gains Act 1992. HMRC rejected the claims for relief, arguing that neither of these claims could be made by executors of a deceased person. This was because the legislation required the shares to have been held by the person making the claim at the time when they became of negligible value. The deceased, rather than the appellants, had owned the shares and the benefit of the loan at the relevant time.
The appellants’ position was that as the deceased’s executors, they stood in the shoes of the deceased and were entitled to make the claim as if they were the deceased. Furthermore, it was not the intention of Parliament to make someone liable for tax prior to their death whilst denying them the opportunity of reducing this tax bill by taking account of their losses simply because they died before they had the opportunity to make the claim.
The first-tier tribunal considered the appeal and held for the appellants.
Held (upholding the appeal):
- 1) HMRC’s ‘overly literal’ interpretation of the legislation was dismissed and a more purposive approach was preferred. A literal interpretation would be contrary to parliament’s intention and would prevent losses which were available to the deceased during his lifetime from being available to set against his lifetime income or capital gains only because the he had died before personally making a claim.
- 2) Under common law, it is well accepted that an executor stands in the shoes of a deceased person. The appellants were therefore entitled to stand in the deceased’s shoes when returning his pre-death income tax and capital gains tax liability and were therefore able to make the loss relief claims that the deceased himself could have made had he lived.
- 3) This approach did not extend to claims covering a period after the date of death where the appellants looked to set off the deceased’s lifetime losses against their own liabilities as executors.
Continue reading "Drown & anr (as Executors of Leadley Deceased) v HMRC [2014] UKFTT 892 (TC)"