Analysis
On an appeal against HMRC’s determination of liability to inheritance tax the appellant made a number of applications in the First-Tier Tribunal (Tax Chamber), including an application to opt out of the complex track costs regime, and for disclosure of documents alleged to be relevant to the HMRC’s assessment that the appellant had not been domiciled in the UK, but in Israel, when shares had been transferred to her by her husband. The appellant contended that she was UK domiciled at the time of the gift and that the spousal exemption applied.
The tribunal wrote to the appellant on 18 November 2017 notifying her that the case was allocated to the complex track, with the result that ‘costs shifting’ applied. On 5 July 2018 the appellant’s representative applied to opt out of the complex track costs regime. That application was opposed by HMRC. The application was made out of time. It should have been made, in compliance of r10(1)(c) of the Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009 (the rules) within 28 days of receiving notice that the case had been allocated as a complex case. The application was treated as an application pursuant to r5(3) of the rules to extend time for compliance with r10(1)(c) until 5 July 2018.
The appellant challenged the adequacy of HMRC’s disclosure by list, seeking disclosure of all documents generated by HMRC, between 2014 (when its enquiry was opened) until its liability decision in 2018, which related to its decision to assess. It was submitted that these documents were critical to establish how HMRC had used the factual matrix provided to ascertain that the Appellant was no longer domiciled in the UK.
Held:
- 1) The right approach, on the appellant’s application to opt out of the complex track costs regime, was to consider: (i) the length of the delay, and whether it was serious or significant; (ii) the reason(s) for any delay so identified, and whether the reason(s) is/are good ones; and (iii) the circumstances of the case.
- 2) Time to make the application to opt out of the complex track costs regime expired on or about 16 December 2018. On the face of it, that would have given rise to a delay of about five and a half months. However, on 13 December 2017 (before the 28 day period for applying had expired) HMRC made a request, with the consent of the appellant’s representatives, to extend the time for filing its statement of case to 11 May 2018. The tribunal approved the extension on 25 January 2018. This equated to a standstill. The net effect was that the true delay was a period of weeks, not months. In the context of the case, and giving particular weight to the standstill (which was by consent, and endorsed by the tribunal) a delay of this length was neither serious nor significant.
- 3) Even if the delay was serious or significant, there was another good reason to extend time. The tribunal’s letter of 18 November 2017, notifying the appellant that the appeal had been allocated to the complex track, was sent only by post, and only to the appellant in Israel. It was not sent, whether by post or by email, to her representative in Manchester. Another letter of the same date was sent by post to the appellant in Israel stating that the tribunal would not communicate with the appellant’s representatives unless the appellant gave written notice by way of completing an authorisation of representative form (form T239). However, representative approval had already been given, electronically, on 8 November 2017. The appellant’s representative suggested that neither of these letters had reached his client. There was a genuine likelihood that something had gone wrong with the post, which was not the fault of the appellant or her representatives. There was prejudice to the appellant if her application was not allowed, in that r10(1) would continue to apply, and she would be potentially liable to pay HMRC’s costs of the appeal. There was nothing to suggest that the parties had actually acted in reliance on the absence of an opt-out, in the sense that either party had taken decisions as to how the litigation was to be conducted, or had taken any steps, which could be said to have been informed or influenced by the costs regime and the appellant’s failure to opt out. The appeal had also not yet been listed for a final hearing.
- 4) In all the circumstances, the appellant’s representatives’ application of 5 July 2018 was to be treated as an in-time notification for the purposes of r10(1). The tribunal directed that the appeal was not to be subject to the costs-shifting provisions of the rules.
- 5) The tribunal should consider any application for disclosure in the light of the overriding objective of dealing with cases fairly and justly. That necessarily involves an assessment of whether considerations of fairness point in favour of disclosure, and whether it is proportionate to direct disclosure, taking into account, among other matters, the nature of the issues arising and the overall amount at stake. The relevance or otherwise of the material requested is at the heart of the tribunal’s assessment, but it does not follow that merely because material is relevant, the tribunal will inevitably direct that it be disclosed.
- 6) The application for disclosure was dismissed. Disclosure was sought to challenge HMRC’s underlying decision-making process to issue a determination under s221 of the Inheritance Tax Act 1984. However, that process was not relevant, because the appeal would not determine whether HMRC’s decision to issue the determination was flawed in a public law sense. The reasonableness of the decision was not justiciable in the tribunal. A fortiori, materials which led to the decision were not relevant. Furthermore, the appellant bore the burden of displacing the determination. HMRC’s statement of case set out their factual case that the appellant had been resident for tax purposes in Israel, and not in the UK, since 1983, in sufficient detail that the appellant and her representatives knew the case that they had to meet. The tribunal’s direction for disclosure of documents was limited to disclosure of documents which the parties intended to rely on or produce in connection with the appeal. The tribunal had not ordered either party to disclose materials upon which they did not rely. Even if the scope of the disclosure obligation were widened to include documents which were adverse to a party’s case, the documents sought would not be relevant to the decision which the tribunal had to reach. It was not fair, just, proportionate, or in accordance with the overriding objective, to order the disclosure of documents which were not relevant. The disclosure sought was also not limited in time and scope, but represented a years-long trawl through HMRC’s documents from 2014 to 2018. As an additional factor, documents which post-dated the decision could not be said to be relevant.
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