Principal Private Residence Relief: Quality Wins Over Quantity!

One of the most common questions asked in relation to principal private residence relief (PPR relief) is: ‘how long do I have to live in the property before I can claim the relief?’  

It would be nice to have a simple answer but, unfortunately, that is not always possible. This is because peoples’ circumstances – and their intentions – may change.

Perhaps the easiest way to answer that query is with another question: ‘For how long do you intend to live there?’ Because the owner’s (or owners’) intention is of critical importance, and simply marking time on a calendar is not going to be helpful.

It is arguable that there is more fluidity in home ownership now than there was when the current legislation was drafted, more than half a century ago. The PPR relief legislation (TCGA 1992, s 222 et seq.) can be traced directly back to 1965. Some (probably HMRC) might argue that the relevant legislation is out-dated and in need of ‘simplification’ (a word which must be considered with the utmost caution, when applied to tax legislation!). I believe that the drafting has held up rather well, as supporting case law has developed in the courts. 

One of the key criteria for a successful PPR relief claim is that the quality of occupation must be such that it constitutes a residence. There needs to be:

‘…a sufficient degree of permanence, continuity or expectation of continuity to justify its description as residence’ (this is from HMRC’s Capital Gains manual at CG64460, taken in turn from the tax case Goodwin v Curtis [1988] STC 475).

I think it has proved quite useful to many claimants that the courts have favoured the reasonable expectation of continuity over actual continuity when the taxpayer’s circumstances change.

Dutton-Forshaw v HMRC [2015] UKFTT 478 was an example of a family scenario where the husband (ultimately ex-husband) lived away from the family home in Lymington and worked during the week in London. The marriage broke down and the couple divorced. Mr DF acquired a new property in London to be his main home but, after a little over fifty days’ occupation, decided to buy a house in Lymington because he wanted to be closer to his daughter so that she did not move to Spain with his ex-wife.

This does not mean that anyone can buy a house, live in it for around two months, and expect to claim PPR relief: in this case, the tribunal was satisfied that Mr DF’s intentions at the outset were to occupy the London property as his main residence for the foreseeable future, even though he knew it might prove not to be a long-term occupation. The ex-wife’s decision to move to Spain prompted the taxpayer to move closer to his daughter.

I am impressed that Mr DF reportedly applied for a London parking permit (as a permanent resident), joined a local dating agency, and attended his local church in London during that short period of occupation (and these were accepted as good evidence of his initial intention to stay indefinitely); I reckon I would probably have just about managed to change my car insurance address over in that time! 

Morgan v HMRC [2013] UKFTT 181 (TC) is perhaps my favourite recent PPR relief case. The taxpayer bought a new property with the intention of occupying it as a residence with his then-fiancée, but the relationship ended soon afterwards. 

Like Mr DF in the previous case, he did actually occupy the property for a brief period (again, around two months – note, actual occupation is almost always essential) but decided to live elsewhere, once it became clear that differences were irreconcilable. However, Mr Morgan had little in the way of personal effects when ‘moving in’ and it seems he was not as thorough as Mr DF in terms of updating other parties such as banks, etc. The tribunal notes are, quite rightly, silent on how quickly Mr Morgan bounced back onto the local dating scene.

He was, nevertheless, saved by his solicitors who noted in contemporaneous correspondence that the property was to be occupied by a non-borrowing occupier – the fiancée. And that is why it is my favourite recent PPR case: the thoroughness of his conveyancing solicitor in what, at the time, would have been quite innocuous paperwork, saved Mr Morgan’s case several years later, in backing up his claim that he had intended to occupy the property as his main residence with his fiancée – it was to be their family home. 

In each of the preceding cases, the property was actually sold some time after the owner took up residence elsewhere, (making use of lettings relief as appropriate), so significant capital gains were at stake. 

Bradley v HMRC [2013] UKFTT 131 also involved a marital breakdown, but the tribunal found against the taxpayer. In this case, Mrs Bradley moved out of the family home to a property that she owned but had previously let out. Notably, Mrs Bradley had put that property on the market for sale, just before she moved into it.

Worse, the property was never taken off the market throughout the period while Mrs Bradley was living there (the taxpayer lived in the property for about seven or eight months, before returning to the family home). In those circumstances, it is perhaps understandable that the tribunal could not be convinced that the taxpayer had any initial expectation of residing in the property for any meaningful period of time that it might be considered her residence.

In all of the three cases above, the tribunal focused on the contemporaneous evidence to discern the claimant taxpayer’s initial intentions as to their occupation of the relevant property, such as:  

Perhaps in the third case, if the taxpayer had subsequently instructed her estate agents to withdraw the property from the market because she had decided to live there for the foreseeable future, then she would have had a much stronger case to put before the tribunal when claiming her relief some years later. To be fair, it is quite likely that the possible capital gains tax implications of such profoundly personal decisions will have ranked pretty low in people’s minds.

It may also be noted that in the first two cases – in which the taxpayers were successful in their claims – external factors changed the circumstances to bring the occupation to an end. In the first case, it was the former wife’s decision to move to Spain that prompted the claimant to leave his new home to be close to their daughter. In the second case, it was the breakdown of a relationship. 

But, in the third case, the taxpayer herself had decided to put the property on the market even before she had moved into it. She then returned to the marital home. The case notes do not record whether the tribunal asked if she would have returned to the family home sooner if possible. If she would, then that might also have been fatal to her claim, as it could have undermined any expectation of permanence in the occupation of the other property.