Capital Losses allowed despite lack of evidence

In Altan Goksu v HMRC [2022] TC08536, the First Tier Tribunal (FTT) allowed a deduction for capital losses brought forward despite no evidence that they had been notified to HMRC over twenty years earlier. The tribunal reduced the amount as it could not be supported by the taxpayer.

Mr Goksu sold a commercial property in 2014-15.

• He made a claim to reduce the gain by a capital loss which had been crystallised in 1998. In 2000 his then accountant submitted a loss claim to HMRC as an amendment to Mr Goksu’s 1998-99 tax return. Neither the accountant nor HMRC had a copy of the claim but the accountant had other records and calculations pertaining to it.
• During an enquiry, HMRC contended that he could not use the loss as he had not notified it to HMRC within the time limits and issued a Closure Notice accordingly. They also issued penalties on the grounds that the use of the loss was a careless inaccuracy, and the figures claimed for deductible expenses in computing the gain were Deliberately inaccurate. 
• Mr Goksu Appealed citing Reasonable care as grounds for appeal in respect of the loss and stating that he had not acted deliberately or carelessly regarding the expense deductions despite accepting the figures were wrong.

The FTT allowed the appeal in respect of the capital loss claim and partly allowed the penalty appeal:

• Despite neither party having a record of the loss claim, the hearing being over 20 years later, the judge accepted from the evidence provided (which included handwritten notes of the accountant) that one had been made and agreed that the loss had been notified to HMRC within the relevant time limit i.e. before 31 January 2005.
• It was sufficient for Mr Goksu to prove that the loss was quantified in the notification and not necessary for him to prove the precise amount stated in that notification, as long as he could show that the quantification in the notification was at least the amount claimed, and he could.
• Based on the evidence provided, and as the original notification from 2000 was not available, the FTT could not be sure that the amount of loss claimed was the correct amount, and reduced it from £549,235 to £412,126, a figure calculated by Mr Goksu’s current accountants as being the minimum amount of the loss.
• The penalties relating to the loss were reduced to zero accordingly.
• The overstatement of the deductible expenditure was careless but not deliberate. Mr Goksu was not an exemplary record keeper but was straightforward and had sought to correct his mistakes. The penalty here was reduced from 52.5% to 22.5%.

Comment

A reminder that whilst most capital losses can be carried forward indefinitely by individual taxpayers, they must currently be notified to HMRC within four years from the end of the tax year for which the loss is being claimed. If this deadline is missed there is a risk that the losses cannot be used.

Useful guides on this topic

CGT: Deductible expenditure
What expenditure is allowable for Capital Gains Tax (CGT)? What about loan interest, early redemption fees etc?

How to calculate a capital gain or loss
How do you calculate a capital gain or loss? What costs are deductible? How can losses be utilised against capital gains?

Penalties: Deliberate Behaviour
What penalties apply to deliberate behaviour? What is deliberate behaviour?

Deadlines: compliance (individuals & companies)
Every UK taxpayer has filing obligations and deadlines. There are penalties for late and inaccurate submissions. What are the deadlines? What penalties can be charged for missing the deadlines?

External link

Altan Goksu v HMRC [2022] TC08536