Designated sole Residence

Designated sole Residence

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My client (X) invested time money and own labour in working on a property owned by another (Z) with a mortgage in the owners (Z) name.  They agreed that if/when sold they would share the proceeds. Owner (Z) claimed property as principal sole residence.  Property was sold subsequently.    Before the sale X  (my client) also lived at property as their sole/principal residence.  They are not married, civil partnered, gay married or in any other in/formal marital arrangement.

Are there any obvious problems with X taking their share of proceeds as their principal residence and not becoming liable to CGT/Income tax??

Anyone has any suggestions

Replies (6)

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By duncanedwards
31st Jan 2015 19:20

Yes
X has not made a chargeable disposal of his PPR.

Looks like he's been paid for his labour and his loan. Your starting point is to counter that analysis. Good luck!

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By dropoutguy
31st Jan 2015 20:44

Sounds like

some sort of joint enterprise leading to a development gain.  The problem would seem to be that it will be excluded from s222 .

What is the history?  When was it acquired and sold? Did they have any other residences? What is the occupation of your client?

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Euan's picture
By Euan MacLennan
01st Feb 2015 11:08

The crucial point

I agree that it might well be an adventure in the nature of trade and hence, subject to income tax rather than CGT, but if not, the crucial point is not whether it was X's residence - you have said it was - but whether he had an interest in the property.  I think you could argue that Z (incidentally, where does Y come in to it?) was effectively holding part of the property in trust for X and that X therefore had a beneficial interest in the property which would entitle him to claim PPR relief on his share of the proceeds.

However, your use of the word "designated" in your heading suggests that X may have had another residence at the same time.  If so, and if he had not elected for the property in question to be his PPR, he would not be entitled to claim PPR relief.

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By duncanedwards
01st Feb 2015 11:57

I suspect Z didn't disclose any other interest in the property when he applied for the mortgage referred to ....

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By martinscutt
01st Feb 2015 15:24

Looks like a duck trying not to be a duck

When I say duck I of course mean taxable trading income. maybe it is just the way you have posed the question and my cynical outside view.

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By Mudweight
04th Feb 2015 11:57

Very Tricky

Thank you everyone.  Your helpful comments all go to prove that it is not as simple as I hoped.

X was not paid for his labour and no interest was charged on the money he or Z spent on the property.   I believe the mortgage was obtained purely by Z.  The interest of X in the property was possibly not declared. .... [[There is no Y in this puzzle! ]] Designated was not the correct word as X did not have another property I should have simply put PPR.  

Anyhow you have given me plenty to think about.

 

 

 

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