Capital Gains Tax Dispute Solicitors
HMRC challenges to CGT returns — over asset valuations, the availability of reliefs, and the correct reporting of disposal proceeds — can result in significant additional tax and penalties. A solicitor will challenge the assessment and protect the taxpayer's position.
Capital Gains Tax disputes arise from HMRC enquiries into CGT returns following the disposal of business assets, residential property, shares, and investment assets. HMRC may challenge the valuation of the asset disposed of (to inflate the gain), deny the availability of reliefs (Business Asset Disposal Relief, Private Residence Relief, Gift Holdover Relief, Entrepreneurs' Relief), or raise a discovery assessment for an omitted disposal. A solicitor will assess the merits of HMRC's challenge, present the evidence that supports the taxpayer's return, and pursue an appeal at the First-tier Tax Tribunal where the dispute cannot be settled.
CGT Disputes — Key Issues
Capital gains tax disputes — the types of challenge most commonly raised by HMRC and how a solicitor responds.
CGT disputes typically involve HMRC challenging either the amount of the gain (disputing the valuation or the deductibility of costs) or the entitlement to a relief that reduces or eliminates the CGT liability. A solicitor will identify which challenges have merit and which do not — and pursue the correct position.
Business Asset Disposal Relief — HMRC challenges to entitlement
Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) reduces CGT to 10% on qualifying business disposals — including shares in a personal company (holding at least 5% for at least 2 years), the whole or part of a business, and business assets used in the business. HMRC frequently challenges BADR claims on the basis that the qualifying conditions were not met — the shareholding was below 5%, the business was not trading for the full qualifying period, or the assets were not business assets. A solicitor will assess the qualifying conditions in detail, present the evidence that the conditions were met, and challenge HMRC's disallowance at the First-tier Tribunal where HMRC's position is incorrect.
Private Residence Relief — disputes over the main home exemption
Private Residence Relief (PRR) exempts the gain on the disposal of a taxpayer's only or main residence from CGT — in full where the property was used as the main residence throughout the period of ownership, and in part where there were periods of absence. HMRC challenges PRR claims where it considers that: the property was not the taxpayer's main residence (they had another property that was the main home); the election was not made correctly (where two properties are owned); the grounds exceed the qualifying area (0.5 hectares or such larger area as is required for reasonable enjoyment); or the final period of ownership was treated differently to the statutory rules. A solicitor will present the evidence of actual occupation and challenge the HMRC disallowance.
Asset valuation disputes — market value for CGT purposes
Where assets are disposed of between connected persons (family members, business associates) or at an undervalue, HMRC substitutes the market value of the asset as the disposal proceeds for CGT purposes. Disputes about market value — of shares in private companies, residential properties, agricultural land, and unlisted investments — are common and can result in significant additional CGT. A solicitor will commission an independent valuation, challenge HMRC's valuation, and present the alternative valuation to the First-tier Tribunal where the dispute cannot be resolved by agreement. The tribunal can accept either party's valuation or substitute its own.
Discovery assessments — HMRC raising CGT for undisclosed disposals
HMRC can raise a discovery assessment where it discovers that a chargeable gain was not reported in a self-assessment return. Discovery assessments for CGT can be raised within 4 years of the tax year in which the gain arose (where the failure was careless) or 20 years (where the failure was deliberate). The most common source of HMRC's information is property transaction records from the Land Registry — HMRC's data-matching systems automatically identify disposals not reported on self-assessment returns. A solicitor will assess the validity of the discovery assessment, challenge the basis of the assessment, advise on any available reliefs that were not claimed on the original return, and manage the appeal.
Gift holdover relief — HMRC challenges on qualifying conditions
Gift holdover relief allows the gain on a gift of qualifying business assets (shares in a trading company, business assets used in a trade) to be deferred — the gain is "held over" and reduces the recipient's base cost, so the gain becomes chargeable when the recipient eventually disposes of the asset. HMRC challenges holdover relief claims where the assets do not qualify (shares in a non-trading company, investment assets held by a company that also trades) or where the relief has been claimed in circumstances that do not meet the statutory conditions. A solicitor will assess the qualifying conditions, present the case that the assets were qualifying business assets, and challenge HMRC's disallowance.
30-day CGT reporting disputes — late filing penalties
Since April 2020, UK residents disposing of UK residential property must report the gain and pay the CGT due within 60 days of completion (previously 30 days). Failure to file within the deadline results in a late filing penalty — an initial £100 penalty, with further penalties at 6 and 12 months. Where the 60-day return was not filed because the taxpayer did not know of the requirement, HMRC may accept a reasonable excuse argument. A solicitor will appeal the late filing penalties, present the grounds that the failure was due to a reasonable excuse, and challenge HMRC where the penalty is disproportionate to the circumstances. Where an estimate was filed and the final CGT liability is disputed, a solicitor will manage the amended return and any resulting HMRC enquiry.