16 January 2014
The Chancellor’s Autumn Statement last month confirmed that capital gains tax (CGT) is to be extended to UK residential property owned by non-residents. At the time of writing this, we are still waiting for further details in the form of a consultation document. However, I predict that securing CGT Principal Private Residence (PPR) Relief will become a popular topic of discussion in 2014 for those non-residents who do use a UK property as a residence. There may be no downside in their electing for the UK residence to qualify for PPR Relief, if they can.
Even for UK residents, PPR Relief should be of immense interest because it is one of the most valuable reliefs that most people are likely to take advantage of in their lifetimes. In short, it allows people to sell their homes and not have to pay CGT on the growth accrued during their period of ownership. So in times of rising house prices, it pays to ensure that your PPR Relief claim is rock solid.
Fortunately there is usually plenty of caselaw to give food for thought and 2013 was no exception. Unfortunately we are nowhere near being able to predict the availability of PPR Relief with certainty in every situation but there seems to be a theme emerging of the importance of a person’s intention at the time of starting to occupy the property. The intention has to be to occupy with a sufficient degree of permanence (whatever that equates to) so that the property constitutes a residence. If this is present, PPR Relief is more likely to be granted, even if the actual occupation of the property is for a relatively short period (just ask the lovelorn Mr Morgan: Morgan v HMRC  UKFTT 181 (TC)).
Two more recent 2013 cases on PPR Relief also deserve your attention:
- Gibson: in this case, the not uncommon practice of demolishing a house and rebuilding another, larger one on the same land occurred. The First Tier Tribunal allowed a PPR Relief claim in respect of the taxpayer’s occupation of the original home but not for the newly built home. A distinction was drawn between the two buildings for the purposes of PPR Relief and unfortunately, while Mr Gibson bravely occupied the new home while it was only still partially built, the Tribunal found that Mr Gibson had decided to sell the new home before he started occupying it and his occupation was akin to camping – both things meant that his occupation was not of a quality associated with a residence. Therefore PPR Relief could not be claimed (Gibson v HMRC  UKFTT 836 (TC)).
- Dickinson: Land surrounding a home only qualifies for PPR if it is ‘occupied and enjoyed’ as the garden or grounds of the main residence (other conditions also apply). The taxpayer’s company started to build a new home in the grounds of the taxpayer’s main residence before it had exchanged contracts with the taxpayer to purchase the land from her. HMRC argued that by the time of exchange of contracts (which triggered the disposal for CGT purposes), the land was no longer being used as the garden of the main residence and denied the relief. The First Tier Tribunal disagreed. Even though works had started, the land still retained its character of garden or grounds. The taxpayer could have ordered the company off the land at any time prior to exchange, so the change in character could have been temporary. To lose the relief, the change had to be permanent. Had the parties formalised the company’s access rights prior to exchange, the position might have been different. A lucky escape! (Dickinson v HMRC  UKFTT 653 (TC)).