Tribunal examines entitlement to Private Residence Relief
In general there is no CGT on a property which has been used as the main family residence. An investment property which has never been used will not qualify. This relief from CGT is commonly known as Private Residence Relief.
In general, taxpayers are entitled to full relief from CGT whereall the following conditions are met:
- The family home has been the taxpayer’s only or main residence throughout the period of ownership.
- The taxpayer has not been absent from the home other than for an allowed period of absence or because they have been living in job-related accommodation, during the period of ownership.
- The garden or grounds including the buildings on them are not greater than the permitted area.
- No part of the family home has been used exclusively for business purposes.
A recent First-tier Tribunal case examined whether a taxpayer was entitled to Private Residence Relief relating to the ownership of a number of properties or whether he was a property developer. Mr Hartland ran a plant hire business and also developed some land and property which he accepted were in the nature of a trade. However, he also purchased four houses over a number of years which he claimed were his main private residences.
The Tribunal decided that three of the properties were bought with a view to making them a home. However, one of the properties at Grey Cottage was found to have been acquired, demolished and rebuilt in the course of a property development trade. The Tribunal said that it was ‘impossible to accept that Grey Cottage was ever Mr Hartland’s principal private residence; rather, the inescapable conclusion is that he bought the property in order to develop it and sell it at a profit’. The property had even been sold as newly built and there was no evidence it was ever occupied by My Hartland.
The Tribunal accepted HMRC’s assertion that what matters is not the intention at acquisition, but what the person concerned did and what the person did cannot be considered in isolation if it is part of a course of conduct.
On the basis of the evidence, the Tribunal found that the sale of the property at Grey Cottage had been in the nature of a trade and that an amount of tax of over £110k was payable. This case highlights the importance of being able to establish that a property is a person’s main residence in order to qualify for Private Residence Relief. In this case the evidence was clearly skewed towards the taxpayer’s activities being a trade.