In Mahmood [2024], the FTT considered a series of transactions between the taxpayer, Mr Mahmood and Ranjay Khan Properties Limited (RKP Ltd), a company owned wholly by his wife. Mr Mahmood had transferred ten commercial properties to RKP Ltd. Mr Mahmood mistakenly believed that the transactions would be covered by the spouse transfer exemption for Capital Gains Tax (CGT) and did not report this on his tax return.
HM Revenue & Customs (HMRC) subsequently opened an enquiry into Mr Mahmood’s return. As the transaction was to a connected person, HMRC determined there was a deemed disposal for CGT based on the market value of the properties and issued a closure notice, charging the additional tax as well as a 27% penalty based on the type of behaviour.
Meanwhile, during the course of HMRC’s enquiry, Mr Mahmood and RKP Ltd agreed to ‘rescind’ the transfer by transferring the properties back to Mr Mahmood.
Mr Mahmood appealed HMRC’s decision to the FTT, arguing that he and RKP Ltd were free to agree to rescind the transactions due to their mistake, as they were not aware of the tax impact on the transfer.
As he had not originally applied to the courts for this, the tribunal concluded he was seeking to rely on the common law doctrine of mistake. Unfortunately, this was unavailable as the mistake would need to be in reference to the terms of the underlying contract or its subject matter, opposed to the tax consequences of the contract. Mr Mahmood appeal was therefore dismissed, and the tribunal upheld the tax payable on the transactions.
This case should serve a strong reminder of the importance of professional tax advice when undertaking transactions. In the world of tax there is little room for error – mistakes are costly and very hard to undo. Fortunately, Lovewell Blake’s teams have a wealth of expertise and are sure to have an expert able to advise on your position.
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