Tuesday, July 20, 2010

Caprice asks the taxman to enquire into her tax affairs

My attention has been drawn to the Weekend FT - money section - which contains an interview with Caprice. Frankly she might just as well have written an open letter to the taxman asking them to open an enquiry into her tax affairs.

Caprice Bourret, 38, is a well known 'super-model', actress and businesswoman. She claims to have a full-time accountant in her office who is very pedantic and a great help. However - either the accountant is also very naive or they were unaware of the interview in which Caprice proudly announced:
"I have been interested in property since my mid-20s, when I invested in government repossessions both here and in the US. After careful research, I would select a place, hold on to it for two years – so I did not have to pay capital gains tax – then I would fix it up and flip it. I made a lot of money doing this, sometimes doubling my original outlay."
Is this just what MPs were caught doing last year as part of the expenses scandal? Er no. Caprice claims to have been buying repossessed properties, doing them up and electing for them to be her main residence for CGT purposes. Almost by definition she has not been living in any of them. As an image conscious 'super-model' it's hardly likely is it? And yet residence of some sort is required to qualify for main RESIDENCE relief.

Residence is not defined in the legislation , but the, not unreasonable, HMRC view is that the person must live there for at least some of the time. So if Caprice never actually slept at these places nor ever treated them as any sort of home, then none qualified for the main residence exemption and the elections she made were inappropriate. You don't have to live in an elected property full time, but you must live in it for some of the time - as did each of the MPs who were flipping their properties before selling them for a profit.

HMRC's help sheet 283 makes a similar point:
Your period of ownership begins on the date you first acquired the dwellinghouse, or on 31 March 1982 if that is later. It ends when you dispose of it. The final 36 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling-house has been your only or main residence at some point.
There is another related point here that is often overlooked too. Buying properties with the intention of selling them at a profit (and then doing so without ever making them your home) makes the profits subject to income tax - not capital gains tax.

I would be surprised if HMRC ignored such a high-profile interview. It is quite likely to be included as evidence that feeds into the risk assessment which determines whether an investigation should be opened. This has long been part of their strategy for identifying high profile targets for investigations.

About the only thing that could save Caprice is the falling HMRC staff numbers that may mean there are insufficient resources available to pursue such a public confession.

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