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HMRC internal manual

Enquiry Manual

Contract settlements: expected offer: means - the taxpayer's house

The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.

When considering what assets can be realised EM6216, you may, in extreme cases, also need to consider realisation of the equity in the taxpayer’s residence. This is a sensitive area and you must approach it with tact.

Before you consider this, you must explore any chance that the taxpayer is able to willing to

  • obtain a loan secured by their assets, including equity in their house, in order to make a cash offer but
  • enter into an instalment arrangement over a reasonable time, see EM6249 onwards.

If the taxpayer still cannot meet the settlement, then you may need to consider realising the equity in their residence.

If necessary, you should point out that in the event of bankruptcy there is a possibility that the Trustee in bankruptcy may obtain possession and sell their home.

Suggest that the taxpayer may want to consider

  • the possibility of ‘trading down’, particularly if a large expensive residence was shown to have been financed from misappropriations
  • if there is little or even negative equity in the residence, moving to a less expensive home with a smaller mortgage to reduce the mortgage repayments, which at the very least may allow an instalment offer to be funded.

You should bear in mind that the taxpayer’s spouse, civil partner or domestic partner is almost certain to have an interest in the residence

  • probably for 50 per cent of the residence
  • even if they are not named in the deeds.

Alternatively, the residence may be in the name of the spouse or partner in which case the taxpayer is almost certain to have an interest and any equity or mortgage repayments may have been paid for by the taxpayer. Be aware of the possibility that this funding could have come from concealed income.