In a salutary warning, a recent case (TC01951: Michael J Harte and related appeal April 2012 First tier Tribunal) illustrates the perils of attempting to manipulate principal private residence relief (PPR).
The two taxpayers, a married couple, appealed against an amendment to their 2007/08 returns disallowing claims to (PPR).
The couple bought Crofts Road in the 1960s and still own it, being a private residence throughout the whole period. Alder Grove was inherited from the husband’s father in May 1992. It was occupied by his step mother until her death in May 2007 and, in June 2007, ownership of the property was transferred from his sole ownership to joint ownership.
During the summer of 2007 the owner of the property neighbouring Alder Grove expressed interest in purchasing it and it was sold to him in October 2007.
The taxpayers made an election under s222(5) TCGA 1992 in August 2008 to treat Alder Grove as their main residence for the period 11 to 19 October 2007.
It was also common ground between the parties that, if there was a valid election, the taxpayers were entitled to PPR in respect of the sale of Alder Grove.
HMRC argued that any occupation of Alder Grove lacked the degree of permanence, continuity or expectation of continuity sufficient to justify its description as a residence and so it was not possible to make an election under s222(5).
The taxpayers did not need to ‘move in’ to Alder Grove as it was already fully furnished and did not take anything as they had everything at each of the houses. They had no computer or internet at Alder Grove and the only work they did on Alder Grove was to fix a leaking gutter. They did not have household insurance for Alder Grove and did not inform the insurers of Crofts Road that they were no longer living there on a permanent basis.
The Tribunal’ found that it was for the taxpayers to satisfy the Tribunal on the balance of probabilities that they occupied Alder Grove as a residence.
‘On the evidence in the present case, the Tribunal finds that the quality of occupation –the degree of permanence, the degree of continuity, or the expectation of continuity – was not such as amount to “residence” within the meaning of s222(5).
… the evidence does not establish that they ever did make it their residence. They never put any of the bills into their own name. They never entertained or had friends or family to stay there. Until the property was sold, the furniture and personal effects of the first Appellant’s step mother remained in the house, as they were, notwithstanding that the Appellants say that they were not close to her. The Appellants did not move in any of their own furniture, pictures, or ornaments. They undertook no work on the property other than to repair one drain…even if the Appellants did spend several periods at Alder Grove, the longest being 3 weeks, the Tribunal is not persuaded that in all the circumstances such periods have the quality of “residence” within the meaning of s.222(5)…’
The appeal was dismissed.
Many seem to have felt over the years that sending an election to HMRC guaranteed PPR. However, although HMRC may acknowledge the receipt of an election, this does not mean that they accept it. Whether a building is a PPR is a question of fact, so this case is an important reminder of the need to establish that the factual position is sound.
Contributed by Mark Morton.