Disadvantageous marriage

The taxpayer and his wife operated a sub-post office and were also in partnership running a ship. The taxpayer was the sub-postmaster.

In 2004 the Post Office closed the sub-post office and made the taxpayer a compensation payment. The partnership stopped trading at the same time. The compensation payment was included in the partnership return as a non-taxable profit.

HMRC enquired into the return and thereby the individual returns of the appellant and his wife. They subsequently amended the taxpayer’s self assessment return to include the whole compensation payment on the basis that the payment was paid to him personally for the loss of his office as sub-postmaster.

The taxpayer appealed.

The First-tier Tribunal found that the payment was received by the taxpayer in his capacity as a partner with his wife in the partnership. It was partnership property and both partners were entitled...