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.

Back


Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

Contact us

For a FREE initial consultation
For a Fixed Fee Quotation

BY POST OR IN PERSON

Chandos House, School Lane Buckingham,
Buckinghamshire MK18 1HD

BY TELEPHONE

01280 823904

BY FAX

01280 822090

BY EMAIL

info@tearlecarver.co.uk

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.