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Recent Decision on Rectification

The Upper Tribunal recently gave an interesting decision on rectification.

The taxpayer affected was a Dutch individual who moved to the UK, selling his home in the Netherlands and investing the proceeds in life insurance policies with Zurich Life.  He made withdrawals from the policies to fund the purchase of a house in the UK.  The process required completion of a form containing surrender options and the taxpayer opted for partial surrender across all of the polices.  He believed that no taxable gain would arise because in total he had taken out no more than he had paid into the policies and, therefore, did not include any withdrawals in his tax return.  Zurich Life was obliged to make returns of withdrawals and HMRC sought to charge tax on the income.

When Zurich Life discovered the effect of the taxpayer’s actions it offered to recalculate the chargeable event certificates based on a more appropriate method of making withdrawals but HMRC rejected this and said the charge was correct based on what had actually happened.  The First-tier Tribunal found in favour of the Revenue but on appeal, the Upper Tribunal ruled that had the taxpayer understood the tax consequences of his choice of withdrawal method he would not have gone down this route.  HMRC’s view was the taxpayer “could and should have taken advice” and accepted that had he done so the position would have been different but as he had not they felt their position was correct.  The Upper Tribunal did not agree; no reasonable man would have expected the outcome that had occurred and on that basis the taxpayer was entitled to rectification.

 

 

Date: 30th April, 2015
Author: Cathy Corns

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