No partnership no tax relief

In SC Properties Limited and Richard Cooke v HMRC [2022] TC08537, the First Tier Tribunal (FTT) decided a property was sold by individuals not a partnership. As no partnership existed any CGT and SDLT relief that was claimed on its disposal was denied.

• Mr and Mrs Cooke (the Appellants) acquired a farm in 1989.
• SC Properties Limited (SCP) was incorporated by the Appellants in 1997 to develop properties.
• In September 2014, planning permission was obtained for the development of a property on the farm called Marepond Copse (MC).
• The Appellants claimed that they owned MC in partnership from September 2014.
• SCP was engaged to complete the development and engaged a third-party builder to complete the works.
• The property was transferred to SCP as part of an option agreement granted by the Appellants, contracts were exchanged in April 2016.
• The Appellants personally claimed Capital Gains Tax (CGT) relief on the appropriation of the property which had previously been held as an investment to trading stock.
• An election was made to defer the profit on the sale of the property by the Appellants to the company.
• The Appellants claimed Stamp Duty Land Tax (SDLT) relief under the Partnership SDLT provisions.
• The partnership was registered in February 2019.
• HMRC inquired into the self-assessment and SDLT returns claiming that No partnership existed.
• Closure notices were issued on the basis that as no partnership existed, the claimed reliefs were not therefore available.
• The taxpayers Appeal to the FTT.

The FTT found that:

• The three conditions for a partnership to be in existence were not met:
  • There was no business:
    • Other than the assertion of the appellants, no evidence was provided to suggest commercial relationships had been entered into by the partnership; there were no invoices or contracts for the sizeable development in the partnership's name.
    • The partnership did not have its own bank account or register for VAT.
  • The business was not carried on by two (or more) persons.
    • That the partnership was between husband and wife did not mean that the usual formalities could be ignored.
    • It was difficult to accept the Appellants were acting in common as no evidence was provided to confirm Mrs Cooke’s understanding of the arrangements.
    • None of the documentation (financing and option agreements) made reference to the existence of a partnership.
    • Although partnership tax returns and accounts were prepared, these were 'self-serving documents' and cannot be treated as independent evidence of the existence of the partnership.
    • The evidence of the partnership start date was confused.
  • The business was not carried on with a view to profit.
    • The evidence suggested the intention was that the profit accrued to SCP not the partnership, evidenced by the grant of the option which effectively moved profits to SCP.
• As no partnership existed, the elections made were invalid and the partnership SDLT provisions do not apply.

The appeal was dismissed.

Comment

This case highlights that implementation is vital when undertaking a tax planning exercise. Failing to ensure that documents are drafted to reflect the intentions of the parties can cause the relief to be missed.

Useful guides on this topic

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How to appeal an HMRC decision
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External links

SC Properties Limited and Richard Cooke v HMRC [2022] TC08537