[2024] UKUT 00385 (TCC)

That he should be liable to capital gains tax in respect of his disposal of the Property only on any increase in value arising while he was the beneficial owner of the Property. This was described as the “Legislative Issue”.

That the Respondents are estopped from assessing him to capital gains tax on any gain arising in respect of the Property because of certain assurances which the Respondents gave to him in the course of correspondence. This was described as the “Estoppel Issue”.

The Appellant inherited the Property from his mother on 31 July 1997. He was the sole registered owner of the Property prior to his bankruptcy.

The Appellant was made bankrupt and beneficial ownership of the Property vested in his trustee in bankruptcy on 21 February 2000.

The Appellant was discharged from bankruptcy on 21 February 2003.

The Appellant granted an option to purchase the Property to Choiceplace Properties Limited (“CPL”) on 4 May 2016. The consideration for the option was £1 and the option price was £215,000.

CPL exercised the option on 28 September 2016.

In October and November 2016, the Appellant had correspondence with HM Land Registry about removing certain bankruptcy entries from the registered title. The FTT was not provided with the relevant correspondence, but it found that the Appellant’s letters referred to the Property being held in trust. The Land Registry indicated that if the Property was held in trust then the register ought to include a restriction that a sole proprietor could not give a valid receipt for capital monies received on sale. Only two trustees could give a valid receipt.

There was evidence that by 7 November 2016 the Land Registry had updated the register to show the trust restriction referred to above and that the Appellant’s wife had been appointed as a co-trustee. No copy of the registered title was provided to the FTT.

The sale to CPL was completed on or about 10 November 2016. No copy of the land transfer was provided to the FTT, but the Appellant’s evidence was that it was completed by himself and his wife as co-trustees.

The Appellant’s tax return for 2016-17 did not declare any capital gain and on 16 April 2019 HMRC opened an enquiry into the return and requested information in relation to property disposals.

The Appellant’s representative informed HMRC that the Appellant did not have the ability to sell the Property until late 2016 because the title had been “locked into bankruptcy restrictions”; the Property had been sold at a loss and therefore it had not been included in the Appellant’s tax return.

It is common ground that, immediately before his bankruptcy commenced, the Appellant was the sole beneficial owner of the Property as a matter of general law. That has never been in dispute.

However, there has been some dispute over whether the Appellant remained the beneficial owner of the Property as a matter of general law once the bankruptcy commenced. In that regard, we agree with the Appellant that, as a matter of general law, the Appellant’s bankruptcy would have resulted in the automatic loss of beneficial ownership by the Appellant of the Appellant’s assets, including the Property, by virtue of Section 306 of the Insolvency Act 1986. Those assets became part of the bankruptcy estate automatically so that the trustee in bankruptcy would be able to deal with the assets freely in the course of the bankruptcy.

The precise location of the beneficial ownership of the Property as a matter of general law from time to time following the Appellant’s discharge from bankruptcy is not entirely clear. The only thing that we can say for certain is that, at the point when the Appellant finally completed his disposal of the Property in November 2016, he was the sole beneficial owner of the Property as a matter of general law. We say that because the Appellant candidly accepted at the hearing that he had received the sale proceeds for the Property from CPL on his own account and that CPL had acquired beneficial ownership of the Property as a matter of general law as a result of completion. Moreover, the trustee in bankruptcy did not play any role in the disposal to CPL, which means that the Property clearly did not form part of the bankruptcy estate at that time.

At the start of the hearing, we asked the parties to confirm that the conclusion set out in paragraph 10 above was common ground – confidently expecting an affirmative answer from both parties - and were somewhat taken aback when the Appellant sought initially to deny that he agreed with it, saying that beneficial ownership of the Property as a matter of general law had never re-vested in him. Our surprise stemmed from the fact that the correspondence summarised in paragraph 3 above is replete with instances where the Appellant clearly accepted that that re-vesting had occurred by the time that he completed the disposal – see, for example, the Appellant’s letters of 9 July 2019, 5 August 2019, 10 September 2019, 1 November 2019, 2 November 2020, 7 December 2020 and 25 May 2021.

We believe that, during the course of the hearing, the Appellant came to accept that, as a matter of general law, he was the beneficial owner of the Property as a matter of general law by the time that he completed the disposal of the Property to CPL but, in any event, to the extent that he did not, we find that this was the case for the reasons set out in paragraph 10 above. It is perfectly apparent that, regardless of the precise date when beneficial ownership of the Property as a matter of general law was re-vested in the Appellant, the relevant process had occurred by the time that the disposal of the Property was completed.

All that we can say is that we have seen no evidence whatsoever that the Property was subject to a trust before the start of the Appellant’s bankruptcy and nor had HM Land Registry, certainly at the time of its letter to the Appellant of 1 November 2016. On the contrary, such evidence as we have seen suggests that the Appellant was the sole legal owner of the Property at that time, in addition to being the sole beneficial owner of the Property. That is what the registered title said and no trust deed has been produced to suggest that, prior to his bankruptcy, the Appellant’s legal ownership was as trustee or that there was a co-trustee. Indeed, the fact that the Appellant was the sole registered owner of the Property prior to his bankruptcy, coupled with the fact that, by his own admission, the Appellant was the sole beneficial owner of the Property as a matter of general law prior to his bankruptcy, means that there could of necessity be no trust of the Property in existence prior to that date.

66(1) In relation to assets held by a person as trustee or assignee in bankruptcy or under a deed of arrangement this Act shall apply as if the assets were vested in, and the acts of the trustee or assignee in relation to the assets were the acts of, the bankrupt or debtor (acquisitions from or disposals to him by the bankrupt or debtor being disregarded accordingly), and tax in respect of any chargeable gains which accrue to any such trustee or assignee shall be assessable on and recoverable from him.