Mark McLaughlin highlights a case in which claims for capital gains tax principal private residence relief on the disposal of three properties in consecutive tax years all failed.
Principal private residence (PPR) relief for capital gains tax purposes is available on most disposals by individuals of their dwelling-house. The assumption is normally that any capital gain will be subject to PPR relief.
Unfortunately, this assumption is not always correct.
Is it ‘occupied’?
PPR relief broadly applies to gains accruing to individuals on the disposal of (or of an interest in) all or part of a dwelling house which has (or has at any time during their period of ownership) been their only or main residence.
The question often arises: how long does someone need to occupy the house as a residence for it to be eligible for PPR relief?
The answer to this question cannot be found in the PPR relief rules. HM Revenue and Customs (HMRC) states in its Capital Gains manual (at CG64427): ‘There is no minimum period of occupation that would enable an individual to establish a residence.’
Is it a ‘residence’?
Occupation is a fundamental requirement for PPR relief. Another key requirement is that the dwelling was occupied as the individual’s ‘residence’. This is a question of fact, and disputes sometimes arise with HMRC.
For example, in Hashmi v Revenue and Customs [2020] UKFTT 229 (TC), the taxpayer owned three properties (‘CL’, ‘MC’, and ‘FC’):
- CL was bought on 28 March 2013 for £125,000; it was sold on 18 September 2013 for £165,000.
- MC was purchased on 11 November 2013 for £161,000; it was sold on 6 June 2014 for £249,999.
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FC was bought on 16 September 2014 for £209,000. It was sold on 10 July 2015 for £315,000.
HMRC refused the taxpayer’s PPR relief claims on the disposal of all three properties. The First-tier Tribunal (FTT) noted that during the entire period from March 2013 to July 2015 the taxpayer continued to use another property (SCL) as her address for various financial matters and remained on the electoral register at that address.
The FTT was not convinced that the taxpayer occupied CL with some degree of permanence, some degree of continuity or some expectation of continuity (as required by Goodwin v Curtis [1998] STC 475). Extensive work was carried out to MC, but no invoices were produced. The property was listed for sale within three months of purchase. No bank statements or insurance documentation were produced showing that address. Only three estimated utility bills were provided by the taxpayer, all addressed to ‘Owner/Occupier’. Furthermore, being registered for council tax only showed ownership, not occupation.
The FTT concluded that FC was purchased with a view to increasing its market value prior to resale. Once again, the taxpayer failed to produce sufficient evidence to show ‘some degree of permanence, some degree of continuity or some expectation of continuity’.
Practical tip
In Hashmi, the relatively short periods of ownership were probably not as fatal to the taxpayer’s case as the lack of evidence that each property was occupied as a residence. Adequate records should be maintained to demonstrate that the requirements from Goodwin v Curtis for ‘some degree of permanence, some degree of continuity or some expectation of continuity’ were met in the periods of occupation.
