Jurisdiction of the Tribunal to Contract Settlements (Morris and Gregson)

In this appeal Mrs Morris and Mrs Gregson sought to challenge a liability to capital gains tax, and in particular the valuation of the asset disposed of which purports to give rise to that liability.

However, HMRC contended that the tribunal had no jurisdiction to determine the issues being raised by Mrs Morris and Mrs Gregson. As a result a hearing was listed for the tribunal to consider whether or not it has jurisdiction. If not, the tribunal must strike out the appeal pursuant to Tribunal Rule 8(2)(a) which states:

“The Tribunal must strike out the whole or a part of the proceedings if the Tribunal –

a) does not have jurisdiction in relation to the proceedings or that part of them.”

The Facts
Mr George Sutton of Ascrofts Farm (the Farm) died on 28 January 2005 and appointed his sisters Jennie Gregson, and Alicia Marsden as his executors and trustees. He left his estate on trust for his four sisters. The Farm was valued as at the date of death in the Inheritance Tax account at £650,000.

In March 2006 the Farm was sold by public auction for £800,000.

An estate return to HMRC was made claiming capital losses of some £18,000. This was on the basis that the sale proceeds be substituted for the probate value at the date of death.

HMRC did not accept the loss claim and the value of the Farm was referred to the District Valuer. A value of £740,000 was eventually agreed as the value at the date of death.

HMRC sought to negotiate a contract settlement for the additional tax and penalties due rather than make a formal determination of penalties. HMRC proposed a total sum for tax, interest and penalties of £26,650 which was amended to £26,612 before finally being accepted by HMRC.

A complaint was later made against HMRC that there had been no proper valuation of the Farm. The complaint was not upheld by HMRC and Mrs Morris and Mrs Gregson were told that if they did not agree with that decision then they had 30 days to appeal to the Tribunal Service.

The Decision
However, HMRC contends that the FTT had no jurisdiction in relation to the valuation and the resulting tax liability. It was submitted that there was no assessment which would engage the jurisdiction of the FTT. Instead matters were concluded by way of a contract settlement. HMRC relied on the description of the FTT’s statutory jurisdiction in Revenue & Customs Commissioners v Hok Limited [2012] UKUT 363 (TCC).

The power of HMRC to enter into contract settlements was confirmed by the Court of Appeal in IRC v Nuttall [1990] STC 194. At p203h Ralph Gibson LJ accepted the submission of counsel to the Crown that where a sum is agreed to be paid under a contract of compromise, the commissioners are bound by that contract and cannot in respect of the year or years covered by the contract pursue any claims to tax, interest or penalties. The sum payable under the contract can only be recovered by proceedings at law for debt.

It is implicit that a contract settlement takes effect outside the statutory regime of assessments and appeals to the FTT. In so far as HMRC wish to enforce a contract settlement they must do so by proceedings in debt. In so far as a taxpayer wishes to challenge the enforceability of such a contract he or she must do so in defending such proceedings.

It was found that the FTT has no jurisdiction in relation to the contract settlement and the appeal was therefore strike out.

Why it matters
This is a reminder that contract settlements take effect outside the statutory regime of assessments and appeals to the FTT. There is therefore no jurisdiction for the FTT to hear appeals in relation to the contract settlement.

(Dorothy M Morris and Jennie Gregson v HMRC, First-tier Tribunal (2014) TC 4098)