principal private residence question

principal private residence question

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a client who is a farmer, has owned a second house which was rented out until about 2007. Since then it was vacant for a period  and now client has transferred the house to his son. can the client claim principal private relief, or elect now that the second house was his ppr, even though he has never lived in the house?

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By User deleted
23rd Jan 2012 21:29

No

[EDIT]  Possibly - see below

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By frankie3
23rd Jan 2012 10:08

In which circumstances then could you elect that the second house be your ppr. I thought that you had the option under certain circumstances.

your help would be appreciated.

 

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Euan's picture
By Euan MacLennan
23rd Jan 2012 10:17

When you have two residences

As "he has never lived in the house", it has never been his residence and an election between two residences cannot possibly apply.

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By TaxationPete
23rd Jan 2012 12:18

I'm afraid not. PPR would be denied by HMRC. Regards Peter

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By steph_2012
23rd Jan 2012 12:44

You must have resided in the house at some point to elect PPR

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By blok
23rd Jan 2012 20:19

.
Are we all 100 % sure? If the individual is in employment related accommodation and acquires a house with the "intention" to reside there then I do recall that he may not actually have to reside there in order to have a case. Happy to bow to the masses, but something is ringing a bell.

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By User deleted
23rd Jan 2012 21:31

You are quite right, blok

I jumped the gun somewhat. It is possible that s222(8) could apply here. This would depend on the status of the farmer and whether or not the farmhouse constitutes job-related accommodation, and whether or not there was any demonstrable intention for him to occupy the second property as main residence.

I suspect that it will be unlikely to apply, but you never know ...

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By TaxationPete
24th Jan 2012 09:01

The OP stated "has owned a

The OP stated "has owned a second house" so he owns the house he lives in and that will be his PPR. It needs clarifying but that is how it looks based on the information provided. Regards Peter

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By frankie3
26th Jan 2012 11:32

How would constitute having shown demonstrable intention to occupy?

I would agree that at the time the second house was bought that there may not have an intention to live in it, or that there was any intention of any kind in relation to what was to be done to the house.

At the time the house was bought, it was situated on farm land, and my thinking is that it was the client bought the farm land, which was close to his existing farm lands at the time, and that it was coincidential that there was a house on the lands. 

Also, can ones intentions not change over time, - could it not be the case that when it was bought, that there was no particular intention, then the farmer may have intended to live in it, and the finally decide not to live in it, and transfer it to his son instead?

Regards

 

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By jamesbailey
27th Jan 2012 12:47

Sorry, but no it couldn't and if it had, it's too late anyway.

Unfortunately, it does not matter if the other house qualified as "job related" under 222(8) or not, because if it had, that would only have meant that the farmer had the opportunity to "determine" that it was his main residence under 222(5) within two years of it becoming necessary to determine whether the farmhouse or the other property should qualify as his main residence. That two year window is long gone.

In any event, the property could not have qualified under 222(8), because the only circumstances in which accommodation can be "job related" for a self-employed person is if it is provided by a third party and there is a contract with that party for the self-employed individual to carry on a trade from that property. All the other definitions of "job related acommodation" in 222(8) refer to employees, not self-employed persons.

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By louisVW4
27th Jan 2012 13:32

What if the client lived in the property for a period...

Is there any flexibility if the client bought the property and lived there for a couple of years, then moved and rented it out, then bought elsewhere to live full time?

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By MartinLevin
27th Jan 2012 13:33

Feltham versus Frost

is the case where an Essex publican also owned a property in Wales.  He elected for the one further away - and won.

As far as living in a property goes, I managed to minimise a client's Cap Gains (please note NO INITIAL LETTERS used), by getting him to stay one night in the property, thus establishing it as a main Residence.  That was in the 1970s - 1980s (yes I've been around decades, kids)    

The GoodEnglish Professor

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By User deleted
27th Jan 2012 14:16

James ...

... all good points, but the analysis does require certain assumptions.

How do we know that the farmer is self-employed? (But that of course leads to questions about directors etc.)

The election under s222(5) is for the purposes of s222 - in other words to determine which of 2 or more properties that could qualify for s222 relief are to be treated as the main residence. Most job-related accommodation is not owned by the individual and so the election is not relevant to that accommodation (though as noted above, the OP's wording suggests that the client does in fact own the farmhouse).

What would hapen if the intention to reside in the second property was formed less than 2 years ago (regardless of a longer period of ownership)? Yhr 2-year time limit runs from the time at which the question first has to be determined.

In short, as already noted based on what we have been told so far it seems unlikely that PPR could apply to the second property. But without knowledge of all of the facts I don't think anyone can give a catergorical yes or no (despite my attempt to do so in my first response).

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By jamesbailey
27th Jan 2012 15:38

Round the houses

If the farmer were the director of his own farming company, then the "job related" exceptions don't apply (see 222 (8B)) except in circumstances that I am sure you will agree are so unlikely as to be dismissed.

It is a common misconception that a rented property cannot be a main residence, and it is precisely because it can be that the "job related" escape hatch is provided for those such as the headmaster of a boarding school in Yorkshire (living in the school) who buys and lets out a cottage in Cornwall that he hopes to retire to.when his academic days are over. If properly advised, he can elect within the 2 year window for the cottage to be treated as his main residence. If not properly advised, ESC D21 allows a late notification - but this would not apply here, as you will see if you read it.

The fact that the farmer has never occupied the property and now does not own it means that even a Road to Damascus experience whereby he suddenly realises he had previously intended to occupy it will not help.

Actual occupation during the period of ownership is essential for a claim for main residence exemption, with the single exception of a job related situation, and we have now established that this does not apply here - albeit that this has involved assuming (see 222 (8B) and (8C) that

the Farmer is not employed by a company he does not own,he does not suffer a special threat to his security, he is not employed by a not for profit company or charity.

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Replying to The Accountant:
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By User deleted
31st Jan 2012 08:20

Rental property and election

jamesbailey wrote:

It is a common misconception that a rented property cannot be a main residence,

That of course is the case, but I did successfully argue with an Inspector on this very point - or one very similar. s222 relief applies to a property that has been owned by the taxpayer at some time. It follows that an election "for the purposes of this section" should therefore be required only to nominate which one of two or more qualifying properties is the main residence for the purposes of the relief. I think that what swung it was my comment to the Inspector that no-one in their right mind would elect for the rented property to be the main residence. Now, my analysis (accepted by the Inspector) may well be wrong - the "ownership" undoubtedly refers to the ownership of the interest in the property, rather than the property itself and so I guess it would be possible for someone to sell a short residential lease, realising a gain, but how often does that happen. Regardless, it won the day on that occasion.

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By frankie3
30th Jan 2012 10:38

further comment from OP

Hi all, thanks for all your comments. To clarify, client is establihed for tax purposes as self employed farmer (sole trader).

 

Would it be possible to have any capital gain on the second house covered by the letting relief?

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Replying to johngroganjga:
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By jamesbailey
30th Jan 2012 10:43

Letting relief

Afraid not - only applies when the property has been your main residence at some stage during your ownership.

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By louisVW4
30th Jan 2012 11:12

Is there a minimum period of occupation?

Property was main residence for first 2 years out of last 7. Would this be sufficient for relief?

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Replying to lionofludesch:
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By MartinLevin
31st Jan 2012 12:26

Period of residence

See my reply of 27.01.12

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By TaxationPete
30th Jan 2012 15:57

Louis. Are you referring to the farmer or a seperate case. Hyjacking the thread does not help at all. Yes acuallly genuinely living there alters the position considerable but you need to detial the scenario. Regards Peter

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By louisVW4
30th Jan 2012 17:17

Sorry Peter, sort of hijacked this...

I did comment earlier, but this is to do with a separate albeit somewhat similar scenario.

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By TaxationPete
30th Jan 2012 18:11

I suggest you start your own thread and you will get a better response. Regards Peter

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Nichola Ross Martin
By Nichola Ross Martin
31st Jan 2012 12:39

Quality of occupation

Recent cases have focused on qualify of occupation. Difficult to see how that can be achieved if you have never physically occupied the property (noting that there is little hope for job related accomodation arguments in this case).

Anyway, maybe do the maths first, perhaps the MV is low and there is little gain to worry about.

Virtual Tax Support for accountants: www.rossmartin.co.uk

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