McHugh: FTT and ESCs

The recent case of McHugh [2018] UKFTT 403 (TC) left us bemused.

Between 2004 and 2007 Mr and Mrs McHugh built themselves a new house.  They occupied it as their principal private residence from the end of 2007 until they sold it in September 2010.  They made no reference to the disposal on their tax returns.

For tax purposes the “period of ownership” began in 2004.  The property had therefore been occupied by Mr and Mrs McHugh as a “main residence” for only part of their period of ownership.  As a result, the part of the gain corresponding to the period of non-occupation was chargeable to Capital Gains Tax.  So much was not in dispute.

There is an extra-statutory concession (ESC D49) that in some circumstances allows a house to be treated as occupied as a main residence for up to a year (or, exceptionally, 24 months) before it is actually so occupied.  Mr and Mrs McHugh did not meet the published terms of the concession.  So HMRC did not apply it.  Mr and Mrs McHugh thought that the concession should have been applied anyway, and they appealed to the First-tier Tribunal.  They also appealed against the penalty that HMRC had charged them for their alleged carelessness in omitting the gain from their returns.  (They also appealed on a minor computational point but to keep it simple we’ll ignore that.)

The first point that leaps out from the case is that the First-tier Tribunal is required to consider the law and only the law.  It simply has no jurisdiction to consider the application of extra-statutory concessions.  Mr and Mrs McHugh could be forgiven for being ignorant of that fact.  But HMRC must have known that and should have politely reminded the Tribunal chairman that consideration of ESCs is above the FTT’s pay grade.  Instead, the Tribunal decided that the concession ought to be allowed in the way that Mr and Mrs McHugh wished, and determined the appeal accordingly.

The second point is in relation to the penalty.  On an appeal against a penalty, the onus of proof lies with HMRC.  Where a penalty is charged because of a careless omission from a tax return, it’s for HMRC to show that the taxpayer has been careless, not for the taxpayer to show that he hasn’t.  In this case the sum total of HMRC’s evidence of carelessness was that the tax return did not disclose a capital gain.  That, as the Tribunal chairman pointed out, is not sufficient to show that the omission arose because of carelessness, so the penalty could not stand.  That part of the decision cannot be impugned.

Did Mr and Mrs McHugh owe their success before the Tribunal not to the strength of their case but to the utter incompetence of HMRC?  You might very well think that.  We couldn’t possibly comment.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


By submitting this form, the data provided will be used to perform your request according to our privacy policy.