The First-tier Tribunal (tribunal) has held that the personal representatives (PRs) of a deceased individual (JL) who had incurred capital losses during his lifetime were able to claim relief for those losses against income and capital gains that had arisen to JL before his death (although not against income and capital gains that had arisen to the PRs from JL's estate following his death). The losses related to:

HMRC had argued that the PRs were not able to claim either form of loss relief because the legislation stipulated that only the person who had owned the shares at the time they became of negligible value (in the case of the section 131/section 24 claim) or who had made the loan (in the case of the section 253 claim) could claim the relevant relief. In both cases, this was JL himself and not his PRs.

The tribunal rejected HMRC's "overly literal" interpretation of the legislation, commenting that it would be both remarkable and contrary to parliament's intention if losses available to a taxpayer during his lifetime were held to be unavailable to set against his lifetime income or gains simply because the taxpayer was not alive to submit the claim personally. Interpreting the reliefs purposively and taking account of the general common law rule that claims transfer to an individual's PRs on death, the tribunal found that JL's PRs stood in JL's shoes when returning his pre-death income tax and CGT liability and were therefore able to make the loss relief claims that JL himself could have made had he lived.

The tribunal's decision, although unsurprising, provides helpful clarification for PRs dealing with a deceased's pre-death tax liabilities. If HMRC's arguments had succeeded, the result could have had a particularly unfair impact on the estates of those taxpayers who die unexpectedly and without having the opportunity to put their tax affairs in order. HMRC's attempt to apply such a literal construction to the relevant statutory reliefs in this case sits uneasily with the purposive construction that it so often advocates in tax avoidance cases.

Case: Drown and another (as Executors of Leadley Deceased) v HMRC [2014] UKFTT 892 (TC) (Bailii).