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Principal Private Residence

Principal Private Residence

......as well as having a UK home where the remaining 6 months each year is spent. No PPR election has been made and the overseas home is to be sold - and neither property has ever been used for anything other than the client's residence.

Can PPR relief be claimed on a proportionate basis against the overseas home?

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By BKD
30th Apr 2012 17:57

No

You can have only one private residence and if you want one or other property to be treated as such an election needs to be made.

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30th Apr 2012 19:28

An election is only valid within a two year time frame from when you owned both properties. I assume you have remained UK tax resident.

Regards Peter

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By BKD
30th Apr 2012 20:48

2 year time limt

Correct - except that the starting point is not necessarily when ownership of both commenced. The starting point is when there becomes a question mark as to which is the main residence.

In this case, given the information in the question, it seems that the two are indeed one and the same.

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01st May 2012 10:22

Many thanks for these replies. As an election for either property to be treated as the PPR has not been made then it presumably falls for the matter to be determined by the facts of the case? I believe the quality of occupation of each property leads to the conclusion that, on the facts, both properties were used as the PPR for the appropriate six months in each year.

 

Therefore, on the disposal of the overseas property, is it correct/possible to time apportion the period of ownership and allocate 50% (relative to the six months per annum occupation as the PPR) as being exempt under S.223?

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By ACDWebb
01st May 2012 10:39

No

there can only be one PPR so it is either/or.

As an outside chance could you mount a claim that the one now being sold was the PPR and that the UK one will become PPR as the sole property available after sale. That would of course be to accept that on the ultimate sale of the UK property for years to date, so you would have to guess some numbers to give a comparison.

If the present intention is to remain there until death, when probate would wash out the gain, then it might help, but does that by implication suggest that the UK property was the PPR all along?

Just throwing ideas about now & not suggesting that it will work but it might be worth a look.

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By BKD
01st May 2012 10:47

Yes

(changing my initial answer). We don't know what the facts are, but if you are satisifed that the facts support the argument that each property was, at the relevant times, the main residence (having regard to HRC guidance etc on change of address, location of furniture etc) then I agree that the legislation should allow apportionment as you suggest

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01st May 2012 10:52

Thanks. In one year (of the total 17 years of ownership) the client did live in the overseas propery for 10 months and so at the very least, that period (plus the final 36 months) can be available as exempt on a time apportionment basis I believe? That exempts over 22% of the capital gain (which is some £600,000) on the sale and as the client is elderly and has no intentions of selling the UK home. there is unlikely to be a CGT liability arising on that property.

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By ACDWebb
01st May 2012 11:08

Yes I suppose so

It'll be interesting to read the tribunal report :)

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01st May 2012 11:31

Many thanks "BKD" - the facts

Many thanks "BKD" - the facts are persuasive as for each period of occupation annually in the overseas property all correspondence was dealt with from that propoerty, and the usual components of a property being a PPR (in accordance with the HMRC guidance), existed. In fact, it would arguably be impossible to differentiate between each property for the respective periods of occupation.

In response to "ACDWebb", are you suggesting that we are on unsafe ground in approaching the sale in this way? 

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By ACDWebb
01st May 2012 11:44

No

It's just I had not considered it that way having in mind the "only one PPR" maxim (and hence my No response), so you never know there might be someone at HMRC who wanted to test it all the way and I suspect if picked up - because you make a White Space note to stop off a later discovery - you might have some fun & games to come

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By JAADAMS
01st May 2012 11:55

Difficult...

It will not be easy to persuade HMRC that the overseas residence is the PPR.  ACD Webb is right - there can only be one PPR at any one time. If the overseas property is deemed the PPR then the UK property will become the PPR on sale of the overseas property. An election is too late.  If no election HMRC  views ‘residence’ on the basis of quality rather than length of occupation, such that ‘even occasional and short residence can make a residence; but the question is one of fact and degree’ (CG64441).

There are two main conditions that need to be satisfied for PPR:

the property must not have been purchased for the sole reason of making a profit (s 224(3)), even if the individual lives in the house for a period before it is sold; andit must be an individual's only or main residence throughout the period of ownership (s 222(1)).

The first factor is not relevant in this case I presume. So we are looking to satisfy the 2nd condition. If you want the overseas property to be the PPR you are going to have to think of factors that will persuade HMRC that the overseas property is the PPR in comparison with the UK property.  This will be difficult especially if the owner is UK domicile and UK resident. You dont say... is there dual nationality?

Suggest read further text... in the HMRC Capital Gains Manual the rules are detailed at sections CG64200 to CG65550 and include a flow chart at CG64270 which can help in deciding whether PPR is available on a transaction. In the HMRC ‘Capital Gains Tax for Land and Buildings Toolkit’, the relevant text is to be found at sections 13–21

 

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01st May 2012 14:08

Thank you JAADAMS.......essentially this is a very genuine case. The client is a Polish national, with Polish domicile who has lived and worked around the world in high profile positions, but predominantly in Greece. Upon retirement he purchased two properties, one in Greece and one in the UK and he is resident and ordinarily resident in the UK. Both properties have been used in equal measure (six months or so at a time in each in each year) as the private residence of himself and his wife, and although both are the "family base" when in occupation it is difficult, I suggest, to say which is the PRINCIPAL private residence; hence my suggestion of a "fair" time apportionment between the two?

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By ACDWebb
01st May 2012 14:31

What you are trying to say

is that on the facts when he was in the UK property it was his PPR, and on moving to the Greek property that was his PPR, again on the facts; so that each time he moves between them the facts are such that the PPR changes without the need to elect.

That was the reason for my tribunal comment earlier.

You might be able to mount an argument to the above effect, and a quick read of the legislation made me think "I wonder" and backtrack, BUT I still think you face an uphill struggle going by HMRC's propensity to take PPR claims to tribunal in recent years.

One might say why does everyone in the same situation not try a similar claim, and why has this never come up before; to which I suspect the answer is when offered the option of one completely exempt & the other not the client probably takes the line of least resistance.

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By BKD
landscaper
01st May 2012 15:11

Multiple PPRs

ACDWebb wrote:

One might say why does everyone in the same situation not try a similar claim, and why has this never come up before; to which I suspect the answer is when offered the option of one completely exempt & the other not the client probably takes the line of least resistance.

I suspect the more likely answer is that the circumstances put forward in this case will be very much the exception. I have a number of clients with multiple properties which, when occupied, could easily be described in isolation as their main residence. But in all of those cases, they tend to live in one property more than the others. Where, as seems to be the case here, time is pretty much divided equally between 2 properties, I would be more comfortable in putting forward an argument as proposed.

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By ACDWebb
johngroganjga
01st May 2012 15:35

Indeed

BKD wrote:

ACDWebb wrote:

One might say why does everyone in the same situation not try a similar claim, and why has this never come up before; to which I suspect the answer is when offered the option of one completely exempt & the other not the client probably takes the line of least resistance.

I suspect the more likely answer is that the circumstances put forward in this case will be very much the exception. I have a number of clients with multiple properties which, when occupied, could easily be described in isolation as their main residence. But in all of those cases, they tend to live in one property more than the others. Where, as seems to be the case here, time is pretty much divided equally between 2 properties, I would be more comfortable in putting forward an argument as proposed.

I started by saying multiple reasons, then forgot all bar one - DOH!
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01st May 2012 14:58

Hopefully the HMRC guidance helps....

.....as these extracts indicate:

The scheme of private residence relief was summarised by Brightman J in Sansom v Peay (52TC1) as,

“To exempt from liability to Capital Gains Tax the proceeds of sale of a person’s home.”

Here Brightman J uses the word ‘home’ in substitution for the word ‘residence’.

And in Frost v Feltham (55TC10), where the Court was asked to decide which of an individual’s residences was his main residence, Nourse J stated,

A residence is a place where somebody lives.”

These quotations clearly emphasise the point that the test of residence is one of quality rather then quantity: the dwelling house must have become the owner’s home. There is no minimum period of occupation that would enable an individual to establish a residence. This was confirmed by Millet J in Moore v Thompson (61TC15) where he stated,

“It is clear that the Commissioners were alive to the fact that even occasional and short residence in a place can make that a residence; but the question was one of fact and degree for the Commissioners.”

“Amongst the factors to be weighed by the Commissioners are the degree of permanence, continuity and the expectation of continuity....... The question whether the occupation is sufficient to make him resident is one of fact and degree for the Commissioners to decide...... in order to qualify for the relief a taxpayer must provide some evidence that his residence in the property showed some degree of permanence, some degree of continuity or some expectation of continuity....” 

On this basis it is clear that while in Greece, that property was exclusively his home, and whilst in the UK, that property was exclusively his home. As it IS factually possible to have two homes, and thus two PPR's, logic would suggest that the periods of ownership of each property must be  time apportioned?

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02nd May 2012 09:08

Thank you all - so is it agreed that there are no reasons in principle why the capital gain should not be presented in this way?

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By ACDWebb
03rd May 2012 09:10

You might want to read

TC 01951 MICHAEL & BRENDA HARTE and the other decisions referred to therein.

Admittedly not on all fours with your case and neither are the other cases referred to, but they do give a clue as to the arguments to be rehearsed & the uphill struggle you are likely to face.

Whilst the argument may well seem viable on the facts you have advised you are going to need a lot of evidence to get HMRC to accept the switches of residence each year.

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03rd May 2012 10:56

Many thanks for this link. In fact, I think it helps considerably in showing the viewpoint of HMRC - the Appellant in this case stayed in the relevant property for only 3 weeks (and the evidence on this was stated by the Tribunal Judge to be questionable) and the two properties were only 6 miles apart. Para 23 is also extremely helpful.

As I said earlier, the facts of the case I am querying are clear - two properties owned in two different countries and occupied as the client's home for equal parts of every year for 17 years - such that the "quality" of occupation of each as the residence was indistinguishable. I think this demonstrates permanence, continuity and quality of occupation of the Greek property as the client's home for six months each year. The "switches of residence" are factual, and not simply "flips" for tax purposes.

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By blok
04th May 2012 09:37

.

what gets me about this case is at para 13, page 4, line 19.   it appears that the apellant's father who died in 1972 left a will containing a provision that the house be left with an Interest in Posession to his wife.  Surely that created a trust arrangement from his death until the date of the wifes death on 20 May 2007? 

The apellant only then owned the property from 20 May 2007 until it was sold a few months later.

Surely most of the gain would fall on the trustees and be covered by PPR due to the wifes occupation of it as a residence.

 

Am I missing something?.

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