Meg Saksida considers what might be done to retain main residence relief. 
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Property prices are still rising in the UK. Brexit and Covid caused small blips in the market, but the stamp duty land tax holiday coupled with an increased need to work from home led to the average UK house price exceeding £260,000 for first time. Taxpayers wishing to sell their homes in these inflationary times may therefore be facing a large gain.
They will, of course, hope to benefit from capital gains tax (CGT) main residence relief (MRR) (also known as principal private residence relief (PPR)) but, to ensure they are eligible for this, sellers need to be mindful of how they use the home to secure this valuable relief.
What does the law state?
In the CGT legislation (TCGA 1992), a dwelling house that ‘has at any time in [the] period of ownership… been [the] only or main residence’ is eligible to MRR. This is a generous relief and can shelter 100% of any gain calculated on a disposal. However, statute does not specify how or how long a taxpayer must live in a property to secure MMR, and there is no definition of what ‘living’ in the property actually entails.
HMRC advises that ‘residence’ should take its ordinary, normal meaning, which is ‘where one’s permanent or usual abode is’. However, all the information gathered so far on what that means in practice has come from case law. The case law has centred around three main concepts: the quantity of occupation, the quality of occupation and the intentions of the taxpayer when they moved in.
The quantity of the occupation
Although how long you live in the property can be an important factor, it is not significant on its own. There have been cases where a taxpayer has lived in the property for only two weeks before investigating renting the property out, where the case for the relief has been won. What is important to secure the relief for such a short stay is that the taxpayer has a ‘degree of permanence’.
In Moore v Thompson [1986] BT 172, Millet J stated: “even occasional and short residence in a place can make that a residence: but the question was one of fact and degree”.
In Morgan v HMRC [2013] UKFTT 181 TC, a young, engaged couple broke up. The home had been purchased in the sole name of the taxpayer, but just before the couple was about to move in, his fiancé left him. Thinking she was simply young, only having ‘cold feet’ and convinced that she would ‘come around’, the taxpayer moved into the house anyway. He was only in the property for two weeks before he realised that she was not going to change her mind, and he enquired with a local estate agent about renting the house out. He did rent the house out some two months later, and eventually, years later, he sold the house at a gain and claimed MRR for both the (short) time he lived in the house and, more importantly, the final 36 months (as the final deemed occupation period was then). He won the case. He was entitled to MRR on the sale because he had every intention, when he moved in, of staying and living in the house indefinitely.
On the other hand, some taxpayers have lived in the house for months or years and have not been able to obtain the relief. In Bradley v HMRC [2013] UKFTT 131 TC, Mrs Bradley, who had separated from her husband, moved into one of her buy-to-lets. The property was empty and was on the market when she moved in. She decorated the house to her taste and lived in the house for around six months but was unable to claim MRR. This was because the house was on the market. The decision in the case relied on the fact that as the house was on the market throughout her stay, despite her redecoration efforts, she was only ever intending to stay in the house temporarily and did not have the ‘degree of permanence’ required.
The quality of the residence
The quality of the residence determines how fully someone lives in the home. Do they sleep there, do their laundry there, cook there? Are their leisure activities or hobbies performed there? Like the quantity of residence, this is an important factor, but it is not significant on its own.
In Llewellyn v HMRC [2013] UKFTT 323 TC, the taxpayer, an air steward, separated from his partner with whom he owned a family home and bought a house close by to the (ex-) family home. However, he moved in with only a sleeping bag. He did not change his address from the old residence with anyone and even applied for a new credit card with the family home address. He constantly went back to the family home to do his washing, to do repairs and odd jobs there. Two years after he left, he reconciled with his wife and moved back permanently. When he eventually sold the house, several years later, having let it out, he claimed MRR for his period of actual occupation and the 36 months deemed occupation. He was not successful as he did not have the quality of occupation required for the house to be his main residence.
As can be seen, quality and quantity are important but, even combined, they are not the most important factor in obtaining MRR; this is intention.
What was the intention?
The intention of the taxpayer to live in and stay in the residence for the foreseeable future when they move in is the most important factor; even with good quantity or quality of occupation, without intention, the relief will be illusive. Mr Morgan intended to stay, so despite having very little quantity, he got the relief. Mrs Bradley had quality and quantity of residence but a clear intention to leave, as the house was on the market, so the relief was denied. Mr Llewellyn had quantity, but no intention or quality, and so was also not able to secure the relief.
In Lo v HMRC [2018] UKFTT 605 TC, a university student who had borrowed money from her mother to purchase a property, the loan having to be paid back after she finished university, was also denied MRR due to lack of intention. She had some quality (she lived in halls but visited the house on the weekends) and good quantity, but there were two facts that showed there was no intention. The first was that she had no way of paying off the loan unless she sold the house, so there could not have been any intention to keep it from day one. The second was she had not shown her boyfriend the house. These combined factors convinced the FTT that there was no intention.
Practical tip
If taxpayers intend claiming MRR on their home, they must first truly be ‘living’ in the home, giving it the quality of occupation required. In addition, they need to be intending to use the home as their main residence for the foreseeable future when they move in. Plans change, and no one has a crystal ball, but if the intention to stay is there to begin with, then the relief is unlikely to be denied.
