Tribunal considers private residence relief

One of the most used and valuable of the Capital Gains Tax (CGT) exemptions is available when the family home is sold. There is usually no CGT to pay when a property that has been used as the main family residence is sold. An investment property, which has never been used as a private residence, will not qualify for this principal private residence relief (PPR).

In a recently decided First-tier Tribunal case a taxpayer’s appeal against HMRC’s amendment to his Self Assessment tax return was denied. The amendment assessed CGT on the sale of a property which he asserted had been his home for a short period and therefore subject to relief as his principal private residence.

The property in question was described by the taxpayer as a ‘decent-sized’ two-bedroom semi-detached house with a garage at an address of 110 Heathlands. The taxpayer had purchased the house in November 2002 and had let it out until November 2006. Due to marital difficulties the taxpayer moved out of the matrimonial home and into the two-bedroomed property during November 2006.

The taxpayer’s contention that he lived at the property for a number of months on his own was accepted by the Tribunal. However, the taxpayer had a lady-friend who he subsequently married. The taxpayer gave evidence that‘it was around March or April 2007 that his relationship with this lady developed to the point that they decided that they would live together’. The Tribunal also heard that much of the taxpayer’s correspondence was sent to his lady-friend’s address rather than to his two-bedroomed property.

The Tribunal considered the evidence to support a claim for PPR relief on the subsequent sale of 110 Heathlands. The Tribunal was clear that from April 2007 at the latest the home ‘didnot have any degree of permanence or expectation of continuity’. The Judge in weighing up the facts concluded that the taxpayer‘never envisaged 110 Headlands as a long term home, and that his occupation there, as HMRC contends, lacked the degree of permanence, continuity or expectation of continuity to render his occupation of 110 Headlands ‘residence’ for the purposes of section 222 and 223 TCGA’. The taxpayer’s appeal was dismissed.

This case serves as an important reminder that property owners must establish evidence to support a claim that a property has, or was, used as their home if they are to be successful in claiming PPR when they sell the property. In this case the taxpayer was unable to prove that he intended the home to be a permanent residence and PPR was therfore denied.


Case Studies

The Tax Man

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Business Valuation in Distress

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FD in The Cupboard

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.