It's just amazing how many queries come up on the PPR exemption for main or only residence. Just as you think you've heard them all, along come another truckload!
Here are the latest ones that are frying my brain:
1) If you sell off part of the garden on a property that used to be your PPR but is currently being let out (so the garden is not even being occupied and enjoyed by you on a non-PPR basis), does the garden still qualify for PPR, bearing in mind the "present tense" wording of TCGA s222 (1)(b)? We all know this means don't fence off any part of the land that is to be developed (as it is only its current use on the date of disposal that matters) but could it also have an effect when the owner is absent? Common sense tells me No, otherwise there would be no PPR on the garden if you had already moved out by the time contracts were exchanged, but reading s222 literally does lead you to that conclusion. For simplicity, let's assume the total land does not exceed 0.5 hectares.
2) In the case of a part-disposal (such as part of the garden) does the 18 month final period apply? Section 223(1) refers to any gain to which s222 applies, which must include part-disposals. Instinct tells me Yes as the 18 months would not end up being claimed twice if the rest of the property was sold later. One part would just "get it early" so at the end of the day the whole property benefited. Yet something is nagging away at me here. Does the final period only kick in when ownership of the whole asset ceases?
3) Can a part-disposal of the land attract letting relief? Again, section 223(4) refers to any gain to which s222 applies, so in theory Yes. Also, you normally let out a house and garden together. You don't usually tell tenants they can't use the garden. But in that case, you could use up the £40,000 cap more than once on multiple disposals, so common sense says it should only be allowed on a pro-rata basis. On the other hand, the chargeable gain "by reason of the letting" would be smaller anyway on a part-disposal, so a restriction is built-in and there should be no reason to pro-rata.
4) A house put into trust (say a pre-2006 IIP trust) can qualify for PPR relief if a beneficiary lives there (under the terms of the settlement) and it is his only or main residence, but suppose there is more than one beneficiary? Does the whole gain attract PPR relief or just the proportion attributable to the beneficiary that lives there? Common sense suggests the latter, so if the trust has 3 beneficiaries and only one lives there, PPR relief would be restricted to one-third of the gain. However, if you read section 225, it refers to "a person entitled to occupy it". It does not say that relief is restricted if they do not all occupy it.
Does anyone have any thoughts on this, or better still, know any case law or tribunal decisions that might provide some guidance?
Replies (7)
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Occupation and enjoyment
1) Occupation and enjoyment does not mean you have to be sitting in the garden soaking up the sun. It simply means legal occupation as owner, free from encumbrance.
You do not need to be occupying and enjoying it as your PPR at the date of sale. The dwelling house needs to have been the PPR at some time during the period of ownership and the garden and grounds need to be occupied and enjoyed (in the above legal sense) as owner at the time of disposal.
2) The dwelling house is simply deemed to be occupied as the main residence for the last 18 months of the period of ownership. How that affects the garden simply flows mathematically. For a part disposal the period of ownership, in relation to that part, ends on the date of disposal, in my view.
3) The land will never attract lettings relief. Read section 223(4) more carefully.
4) For settlements, the gain is the trustees' gain (it is just one gain; there are no shares). One person living there as their main residence and the whole gain attracts PPR.
I do not think it is a conundrum
The words I was referring to were "and the dwelling house in question...has been... let by him as residential accommodation...the part of the gain... by reason of the letting".
So if you let the house with the garden, the whole of the gain (house and garden) is covered by lettings relief.
If you just let the garden, then the dwelling house has not been let as residential accommodation. So you have a chargeable gain on the bit of garden you let.
Oh I see
No, I read section 223(4) as applying to any gain.
It would have to be a very valuable piece of garden to get the £40K though. I imagine the gain attributable to the period of the letting or the gain otherwise exempt would be the limiting factor.
Varty v Lynes
Regarding 1) i am wondering whether the case of Varty v Lynes would still apply. Whilst the land was sold after the house was sold in this instance it appears HMRC's view is that the house has to be the individuals residence at the date of sale for relief to apply to the sale of the garden (even if sold prior to the house). HMRC's view is expressed in CG64377 and in the examples (CG65125 etc) the property is "used as his residence throughout his period of ownership" . I am just wondering whether there are any other cases or any views on whether residence is required or merely ownership at the date of sale of the land within the permitted area ?