Mark McLaughlin warns that occupation by a house owner will not necessarily be enough for a private residence relief claim on its disposal.
When considering the availability of principal private residence (PPR) relief for capital gains tax purposes, there is an important distinction between occupying a dwelling and residing in it.
PPR relief applies mainly to the disposal of (or an interest in) all or part of a dwelling house which is (or was, during their ownership) the individual’s only or main residence.
Occupation and residence
HM Revenue and Customs (HMRC) considers that the individual must have physically occupied the dwelling (although ‘deemed’ periods of occupation are allowed in certain circumstances); intention to occupy is not enough (see HMRC’s Capital Gains manual at CG64465). Furthermore, the property must be occupied as a residence.
The meaning of ‘residence’ was considered before PPR relief existed. In Levene v IRC [1928] AC 217, Viscount Cave LC stated: “… the word ‘reside’ is a familiar English word and is defined in the Oxford English Dictionary as meaning ‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place’.”
In a PPR relief context, a ‘residence’ has been described simply as “a place where someone lives” (Frost v Feltham Ch D 1980, 55 TC 10). Furthermore, in Goodwin v Curtis [1998] STC 475, it was considered that for a dwelling to qualify as a residence, there must be “some assumption of permanence, some degree of continuity, some expectation of continuity”.
Occupied was not enough
In Hussain v Revenue and Customs [2022] UKFTT 13 (TC), the taxpayer purchased the former Mansfield General Hospital (the ‘Old Hospital’) in July 1994 and sold it in July 2013. HMRC disputed his PPR relief claim for four years (i.e., one year’s occupation plus the last three years of ownership).
The taxpayer claimed that sometime in 2002, he started occupying the property, sleeping there each night. He moved some furniture in (from his main residence before and after his claimed occupation of the Old Hospital), and his son gave him a television and video player so he could watch films. He had run a water pipe through the building and moved a portable heater from room to room. He said that he moved out sometime in 2003.
The First-tier Tribunal (FTT) found that the Old Hospital was not habitable as a dwelling; photographs of the Old Hospital taken in 2011 indicated that no work had been done to convert it to residential use (e.g., old medical equipment remained there). The property was clearly derelict. The FTT concluded that the taxpayer’s occupation was insufficient to amount to ‘living in’ the Old Hospital, which had not been his ‘only or main residence’ for PPR relief purposes.
How long?
Even occasional and short residence can make a dwelling a residence (Moore v Thompson [1986] 61 TC 15), although “… the question was one of fact and degree”. There is no ‘safe’ period for these purposes.
HMRC warns (at CG64427): “There is no minimum period of occupation that would enable an individual to establish a residence”.
Practical tip
The test of residence from HMRC’s perspective is of ‘quality rather than quantity’ (see CG64435). In numerous court and tribunal cases, taxpayers have failed to prove that their occupation of dwellings amounted to ‘residence’. Evidence of the quality of residence should be retained, where appropriate.
