Practical points: personal tax May 2025

Capital gains tax

Beware of converting irrecoverable loans to shares

Under s253(3), Taxation of Chargeable Gains Act 1992 (TCGA 1992), a taxpayer can claim a capital loss (a s253 loss) if they have made a loan to a trader that has become irrecoverable. HMRC’s guidance (CG65950) states that ‘irrecoverable’ generally means that there is “no reasonable prospect of recovery” at the date that the claim is made. The loss can only be used against other capital gains.

In some cases, taxpayers who have lent money to a trading company may be tempted to convert that loan to shares after they become aware that the loan won’t be repaid. The taxpayer hopes to make a negligible value claim to generate a capital loss on the shares under s24, TCGA 1992, and then claim to set that loss against their income tax (s131, Income Tax Act 2007), which is of course a much more effective use of the loss. Section 24 requires that the asset being disposed of has “become of negligible value”.

In the case of Bunting v HMRC, HMRC denied Mr Bunting a £2.2m capital loss on shares that were issued to him when a loan he had made to a company was capitalised a few months before the company’s liquidation. The shares were held to have been of negligible value when they were issued and therefore did not become of negligible value.

Before the Upper Tribunal, Mr Bunting was also denied a s253 loss on the loan, because the loan had been released by the lender in exchange for the shares and there was no amount left outstanding. If he hadn’t converted the loan to shares, he may still have been able to claim the s253 loss.

Bunting v HMRC (2025) UKUT 96 (TCC)

Business property relief denied on furnished holiday lets

The First-tier Tribunal (FTT) has upheld HMRC’s position that business property relief (BPR) was not available on a business that included five furnished holiday lets (FHLs). Although staff were employed by the business, and some additional services were offered, the business was mainly one of holding investments.

The deceased had owned five FHLs as well as one uninhabitable house she was in the process of turning into accommodation. These were all in the same area. She also owned her own home and an additional property where the full-time letting manager lived. There were up to eight additional part-time employees. The main home included an annexe with a reception and office used in the business.

The properties were available for short-term lets for most of the year, and bed linen and towels were provided. There was a dedicated website to show availability for the lettings. Each property was fully furnished and had a kitchen and laundry facilities, with items including books and DVDs also in place for the use of visitors. The business did housekeeping and cleaning between lets, and where customers were staying for more than a week then the property was cleaned during the stay. Welcome baskets with tea, milk, eggs, and the local newspaper were provided, as was information on the local area. There was supposed to be a facility to contact staff at any time, but there was not always someone on call.

The executors argued that BPR applied, as the business was the provision of hospitality facilities. Guests were welcomed in person by staff and encouraged to use the reception. Staff helped guests when asked, such as taking them to the local minor injuries unit and booking mobility scooters.

The FTT found that this amounted to staff helping customers on request. Staff were not always available, and this was part of the operation of the FHL business rather than an activity from which income was derived. Activities such as gardening were ancillary or incidental to the business, as they were necessary to any property. Provision of facilities such as welcome baskets was common in FHL businesses. As a whole, the business was mainly one of holding investments, so BPR was not available. This is not a surprising outcome given recent case law in this area, which has demonstrated that a very substantial level of services needs to be provided to cross the line from investment to non-investment.

Executors for the Estate for the late Gertrud Tanner v HMRC [2025] UKFTT 328 (TC)

From Tax Update April 2025, published by S&W Partners LLP

Property tax

A building that was being redeveloped was still residential

The First-tier Tribunal (FTT) has found that the fact that a planning condition prevented the owner from occupying the property did not mean that it was not a dwelling for stamp duty land tax (SDLT) purposes.

The vendor owned two neighbouring properties that had been self-contained dwellings. At the time of sale, the properties were partway through the process of being converted into a joint development that was intended to consist of five residential units. Planning permission was in place, but work had been halted due to the vendor’s assets being frozen. The taxpayer bought one of the original properties, the other was sold to a third party. A planning condition, that the property should not be occupied before the development work for the creation of extra dwellings, remained in force.

The taxpayer argued that this condition and the fact that the building was under construction, so uninhabitable, meant that it was not a dwelling at the time of purchase for SDLT purposes within s116, Finance Act 2003. The FTT dismissed this argument. The finished building did not yet exist, but when it did, would it be suitable for use as a dwelling? Despite the planning condition, the answer was yes. The condition did not affect the suitability of the building to be used as a dwelling when completed, just the ability of the taxpayer to occupy it. It was not a permanent bar on occupation, just a temporary condition. The higher residential rates of SDLT applied.

Bemal Patel v HMRC [2025] UKFTT 373 (TC)

From Tax Update April 2025, published by S&W Partners LLP

Residence and domicile 

Appeal on domicile dismissed

The First-tier Tribunal (FTT) has found that a taxpayer has a domicile of origin or dependence in the UK. His father’s move to the UK in 1938 had resulted in him settling long term and establishing a UK domicile, which the taxpayer inherited. It also found that the taxpayer did not subsequently acquire a domicile of choice in Israel. This case concerns the domicile status of the taxpayer, with tax at stake of more than £6m.

The taxpayer was born in the UK in 1949 and has lived in the jurisdiction of England and Wales almost all his life. The FTT examined his domicile of origin, which depended on his father’s domicile at the time of his birth, and a possible domicile of dependency, which would have resulted from a change in his father’s domicile before he reached his majority on 1 January 1970.

The taxpayer’s father was born in Eastern Europe. His domicile of origin was outside England and Wales, and he moved around Europe on a few occasions. He moved to England in 1938 due to the danger he was in as a Jewish man in Europe, and was naturalised as a British citizen in 1948. The family held no non-UK property. The father left the UK in 1972, was naturalised as a US citizen though it was contested as to whether or not he lived in Israel or in the USA, and he remained overseas until his death in 1995.

The taxpayer stated that his father’s move to the UK in 1938 was on a temporary basis due to the threat, and he had always intended to leave the UK. On his own domicile position, he stated his intention was to end his days in Israel, an intention that he contended was formed in 1970 during his period of residence there. While currently in poor health, he intended to return to Israel to end his days, once he found someone to take over his position as a religious leader in the UK and overcome other obstacles.

The FTT found that the taxpayer had a domicile of origin or dependence in the UK. His father had moved throughout Europe before reaching the UK, with no long-term residence, but after reaching the UK had settled in one locality and established a stable life.

This decision meant that the FTT did not have to consider whether or not the taxpayer had acquired a domicile of choice in the UK, but it did reject his argument that he had acquired a domicile of choice in Israel.

While the changes introduced from 6 April 2025 have reduced the relevance of domicile, it will be a while before it completely disappears and domicile disputes are likely to rumble on for some time.

Aubrey Weis v HMRC [2025] UKFTT 348 (TC)

From Tax Update April 2025, published by S&W Partners LLP