Tax Tribunal Kicks Out HMRC Claims That 7 Days In Residence Is Too Short To Claim PPR Relief

by Mark Alexander

A year ago

Tax Tribunal Kicks Out HMRC Claims That 7 Days In Residence Is Too Short To Claim PPR Relief

Make Text Bigger
Tax Tribunal Kicks Out HMRC Claims That 7 Days In Residence Is Too Short To Claim PPR Relief

HMRC have recently lost yet another important legal battle, this time over CGT due on a property refurb deal.

Mr & Mrs Munford purchased the property in Halsey Street, London SW3 for million in 2004 for £1,050,000. From 19th to 26th  December 2005 they elected the property as their main home between and sold it after refurbishing it in March 2006 for £2,550,000. 

Despite making £730,000 on a refurb deal the couple hadn’t paid a penny of tax as a result of claiming the property had been their principal private residence.

HMRC’s  argument was that only one week in residence was not enough to claim the property was indeed the couples home, hence the PPR relief claimed should not apply and that £190,000 of capital gains tax was due. Tax Tribunal Kicks Out HMRC Claims That 7 Days In Residence Is Too Short To Claim PPR Relief

However, a tax tribunal failed to support HMRC and dismissed its case, pointing to a passage from the HMRC Capital Gains Manual CG64510 which clearly explains how private residence relief can be maximised by varying notices given under section 222(5) Taxation of Chargeable Gains Act 1992. 

To read the full ruling CLICK HERE

Landlord Tax Planning Consultancy is the core business activity of Property118 Limited.

There are a number of restructuring options you may wish to consider. The presentation below provides a useful overview of various scenario’s and solutions to improve the tax position.

We offer fixed fee tax planning consultations with a guarantee of total satisfaction or your money back.

Show Book A Tax Planning Consultation Form

Book A Tax Planning Consultation Form

Consultations include new client compliance checks, fact find via email with complimentary software, expert analysis, a detailed written report and recommendations and a 30 minute Q&A session via Skype or telephone. We GUARANTEE total satisfaction or a full refund.
  • Please provide an overview of your circumstances and what you are looking to achieve.
  • If you have a spreadsheet with details of your properties please upload it here.
  • Price: £ 400.00
  • £ 0.00
  • American Express
    Discover
    MasterCard
    Visa
     


Comments

Denise G

A year ago

So does this mean, then, that one of us could move in to any of our BTLs whenever a tenant moves out or it goes onto the market, live there until it's retenanted or sold, so's not to leave it standing empty whilst paying for overpriced Vacant Property Insurance (which affords very little cover), and also as a bonus avoid paying CGT?

Mark Alexander

A year ago

Reply to the comment left by "D D" at "30/01/2017 - 12:13":

Not quite, but it does help to avoid some CGT, and it's perfectly legal. There are things you MUST get right though, such as switching bills and driving licence address over. It's a. It of a pain but can save a LOT of money, which makes it very worthwhile.

Discuss it with your accountants, my parents have been doing this for over a decade as part of their exit strategy.
.

I had been under the impression that you had to move into a house for about a year to be able to do this - one week is pretty good! If it's legal and it saves you a packet then jolly good I say. Although, I would suspect the rules would be changed pretty soon to try and stop this or we would all do it.

Annie Landlord

A year ago

But can you only do this is you have no other PPR? I thought it couldn't work if you lived at/paid bills at another permanent address?

Reply to the comment left by "Annie Landlord" at "30/01/2017 - 16:07":

I'm thinking one thing to do would be if you were going to move from your family home you could sell that first before finding your next permanent home, move into the rental house and then purchase your new family home...
I wonder if anyone can do the sums on this and work with the following example:
House bought for £80,000 20 years ago which is now worth £240,000, assuming £40,000 spent on it over the years and assuming this is the only house sold in a given tax year. Assuming also that, for example, you live in it for a few months (although according to the above ruling, this bit is less important).

Mark Alexander

A year ago

Reply to the comment left by "Dr Rosalind Beck" at "30/01/2017 - 19:33":

In this example your CGT would be reduced by 18/240, i.e. 7.5% so £120,000 gain, less any annual CGT exemption allowances (£11,000 each) X 92.5% X your marginal CGT rate = CGT payable.

Assuming you have two people's annual CGT exemption allowances to use and both will be paying the higher 28% CGT rate the CGT saving would be £2,058. Probably not worth the hassle based on that example.

The savings are far more significant where the ownership period is shorter. If the ownership period was only 18 months the tax payable would be zero. Three years of ownership would reduce your tax by at least half.

This strategy is far better for property flips.

You don't have to sell your existing home to take advantage of this strategy, just move out of it and into the other for a while and make sure you dot your I's and cross your T'a.
.
.

Reply to the comment left by "Mark Alexander" at "30/01/2017 - 19:53":

Thanks, Mark. I thought years ago there was also something about a £40,000 exemption in addition to the years lived in the property. Did that benefit go?

Mark Alexander

A year ago

Reply to the comment left by "Dr Rosalind Beck" at "30/01/2017 - 19:58":

That's Letting Relief, it effectively doubles up PPr relief for up to £40,000 but can only be claimed if you lived in the property BEFORE you subsequently let it out.

It is still available but it's something different to what the Court case in this thread refers to.
.

H B

A year ago

I have had skip through the finding (perhaps starting at p29 gives a good summary) and this shows that the ruling appears to apply in particular to this case rather than setting a precedent. Also HMRC can still appeal.

But it is worth emphasising that HMRC failed to prove that the tax payers were deliberately trying avoid paying CGT. If HMRC had satisfactorily demonstrated this, they would have been liable for the the tax. Many of the details, such as the unplanned pregnancy, were critical to their changing their mind about occupying the house and is important to the finding.

Therefore, take care when using this ruling unless you know exactly what you are doing.

Simon Lever

A year ago

Reply to the comment left by "Mark Alexander" at "30/01/2017 - 20:06":

Hi Mark - no need to have lived in the proerty before it is let to get lettings relief, just as long as some of the time the property was your main residence.

Lettings releif is the lower of:
- the gain after deducting PPR,
- the amount of PPR claimed
- £40,000

Therefore the maximium lettings relief is £40,000 but could be less.

Lettings relief is available to both husband and wife owners so can cover gains after PPR of over £100,000 together with annual exemption. In fact - any joint owners where PPR can be claimed for both of them.

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Property118 Nominated For Prestigious Award