PRR

PRR

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Hello,

An individual has owned a property for a year. During that time he spent a long weekend there every 3 weeks.. He now wishes to rent the property out full time for the next 5+ years before selling.  Would it be reasonable to claim PRR once the property is sold or is the occupation in that first year too temporary or lacking permanence?

For info he doesn't have an interest in any other property (lives with parents 90 miles away). When he bought the property he intended to use it 1 weekend in 3 for years but he's now seen enough of the area. He didn't intend to go there any more than 1 weekend in 3. He's paid Council Tax, water rates etc but didn't enrol on the electoral register, change his address with DVLA, bank etc. The property was basically furnished inside (sofa, chairs, tv, beds) but a landline phone wasn't installed.

Thanks for any advice

Replies (15)

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By duncanedwards
20th Sep 2014 18:55

Are you saying he has owned the property from c12 months as of today?

If so, surprising as it seems (to me, at least) it looks as if he can claim the property as PPR - until such time as it's let out (and then, at the end of the letting, presumably with the relevant PPR related reliefs).

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

 

Owning more than one home

If you live in - not just own - more than one property you can 'nominate' one as your main home. Write to HM Revenue & Customs (HMRC) to tell them which one you nominate as your main home. You must sign your nomination. See the link below to contact HMRC.

You must make your nomination within 2 years of the date from which you change the number of properties you live in. You should make a new nomination whenever the number of homes you live in changes.

For example, you buy a second home in May 2013. You can nominate either this or your usual home as your main home, but you must do so by May 2015.

HMRC will decide which property to treat as your main home based on the facts, unless you tell them which you nominate. This may affect the amount of Capital Gains Tax you have to pay.

If you're married or in a civil partnership and own 2 or more homes between you, any nomination must be made jointly. It must be signed by both of you. You're only entitled to Private Residence Relief on one home between you.

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By King_Maker
20th Sep 2014 20:26

Not sure if his week-end occupation will enable the property to be qualify as a residence.

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By duncanedwards
20th Sep 2014 20:56

Does seem strange but the above link includes:

Working away from home

You'll still get the full relief if you couldn't live in your home because you were employed and either:

- you carried on all of your work or duties outside the UK
- the distance from work or the requirements of your job stopped you living at home - and you were absent for less than 4 years

The following must also apply:

- the house was your only or main home both before and after you worked away
- you were not entitled to Private Residence Relief on any other property during that time (see 'Owning more than one home' below if you're unsure)

Maybe that second last bullet is the problem?

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By wolfbear
20th Sep 2014 21:05

Hi Duncan

Thanks again.

Problem is the house wasn't his only or main home before he worked away. He was already living with his parents and working in London. He then bought the property by the coast while already working away in London.  I think that requirement wouldn't be met?

 

 

 

 

 

 

 

 

 

 

 

 

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By duncanedwards
20th Sep 2014 21:13

Probably a big ask then. The rules are generous - but likely not that generous.

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Replying to SXGuy:
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By wolfbear
20th Sep 2014 21:16

No, I'd be very surprised if HMRC would accept it was a PRR. I may have to tell him to forget the letting for another couple of years and up the frequency of his weekend visits!

Thanks for your time

 

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By I'msorryIhaven'taclue
20th Sep 2014 21:49

Three Distinct Issues

1. So, on the face of it, it seems there is no need for your client to make any nomination as this is the only home in which he has an "interest" (which, incidentally, is not always as obvious as it sounds - the HMRC guidance includes examples of a person splitting his time between two homes, one owned and another rented, who nevertheless needs to make an election for the home that he owns to be his PPR. DuncanEdwards' quote from HMRC confirms that: "If you live in - not just own - more than one property....".  Still, as your client lodges with his parents then one must presume that the absence of any rental agreement would mean that he need not treat his parents' home as a potential PPR. Unless anyone knows better...?)

2. That being the case, your main concern is whether or not one weekend in three is sufficient time to constitute "occupation". You've given us some of the facts, but how about...

i. Is your client's permanent employment in his parents' area, ie 90 miles from his own "residence"?

ii. Were the one weekends in three that he spent at his "residence" because he was carrying out work to the property?

3. Incidentally, the 1 from 6 years that you mention isn't quite correct, as the final 18 months of ownership (which, by the way, has only recently decreased from the final 36 months of ownership) is also exempt. A third exemption, for rental relief, grants up to £40,000 of further exemptions (but very often less) for the remaining 3 and a half years (of the overall 6 years you are contemplating). Of course, all three exemptions (the first 12 months, the final 18 months, and the rental relief exemption in-between) are dependant on the property having been your client's PPR at some point in time. That means that, even if the consensus of the panel is that your client hasn't yet established residence, he might always move into the property at some future time in order to achieve that status. Bit of a last resort, I suppose, but a good safety net to have.

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By wolfbear
20th Sep 2014 21:49

Hello

Thanks for your post

In reply;

Permanent employment is in area of parent's home;

No renovation etc needed. He goes there just for fishing, somewhere different. He could go up there more than 1 in 3 weekends if need be.

Thanks

 

 

 

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
21st Sep 2014 02:25

Fair Argument

Ok, so both of those replies go in your client's favour: He can only practically ever live in his property at weekends, because during the week he needs to lodge with his parents in order to be near his job. And the weekends he spent in his new abode were for quiet enjoyment of his property, not because he was carrying out renovations.

I'd say you had a fair argument; hang in there till Monday when the tax gurus return. It's my guess one of the specialists might know of a precedent involving similar occupational frequencies and circumstances.

It's often a disguised blessing when a client comes to you and says "this is what I've done" as opposed to asking "Should I do this, that, or the other?" If the former is your circumstance, then I guess you might advise the client he has a "fair" argument, but might need to physically move in at some point down the line. If the latter, then I guess you're stuck with either rooting out precedents all weekend or hoping a specialist is able to weigh in with one on Monday.

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By wolfbear
20th Sep 2014 22:17

Thanks for your time.

I've trawled the internet for similar circumstances where HMRC has agreed but can't find any. As I say my worry is he may fall down on 'quality of residence' as he could go there every weekend rather than every third. It's his choice not to do so; there aren't any factors stopping him. He could also continue to go up there beyond a year rather than let it; again it's his choice rather than a change of circumstance.

Recent Tribunal cases seem to have gone in HMRC's favour but if any specialists could help I'd be very grateful.

Thanks again

 

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By I'msorryIhaven'taclue
21st Sep 2014 02:48

Implication and Inference

I have a client whose situation changes twice a year as his Monopoly-like existence leads him to buy and sell his way through the year. On more than one occasion I have been inspired by the wise words of Ms Bennyworth, who once advised my cpd class that she had ordered a client to buy yet another property in order to reset the two-year clock.  Ahhh.. who said cpd is a snooze? Certainly not with Ms B!

All of which leads me to my point that Ms B's client - already the holder of a not insubstantial number of properties - must have spread himself rather thinly across his various "homes". Perhaps, dare I say, managing no more than the odd weekend in the furtherence of establishing his residence in his latest purchase. (That final sentence is purely my inference. You must draw your own conclusion.)

Good hunting! 

 

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By brian.barrett
21st Sep 2014 18:00

PPR largely a matter of declaration rather than fact

There are no actual rules as to the amount of time you spend in 1 property rather than another in respect of which you may claim is your PPR.  You may spend virtually all you time in 1 property, but claim the other as your PPR - it is a matter of declaration.  The time spent in 1 rather than the other only comes into effect if you do not make a declaration in which case HMRC will decide which is your PPR based on the facts.

As you only have an interest in only 1 property - living with parents does not count as a legal interest as far as I am aware you are mearly a guest - I am not convinced that a declaration needs to be made.  You may wish to make a declaration if you wish, to be made within 2 years of acquiring your only property - but this may make HMRC wonder why you are making it and may cause them to ask questions - all of which you are able to refute but you may not wish the questions in the first place.

HMRC may claim under anti-tax legislation.  You cannot be caught under this if you comply with the legislation - i.e. not treating you house as a residence.  As you do live there, albeit for only a small length of time, you furnish it, you pay all appropriate taxation and bills, there is no way they can claim this is not a residence.

The final question though is how would they ever know how long you live there??

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By wolfbear
22nd Sep 2014 19:42

Hi Brian

Thanks for the post.

I think I've been getting too concerned about what "living" in a property actually means. I took it to mean living there as much as possible rather than just staying there for say 1 in 3 weekends 

I had a worry that such an occupancy could be seen as being temporary/ not continuous and the fact it is to be let for the next 5 years would give HMRC a chance to attack PPR when looking at the occupancy as a whole (I.e. lacking permanence)

However thinking about it what you say makes sense.

 

 

 

 

 

 

 

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By brian.barrett
23rd Sep 2014 00:48

Tenancy Begins

Remember that when you obtain a new source of income I believe you are obliged to inform HMRC.

When you do rent your property, you may wish to inform HMRC as to the date you started renting the property.  This will not only mean you have met the requirement to inform HMRC, but will also confirm the date when the tenancy started ... and the date it stopped being your PPR.

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By wolfbear
01st Oct 2014 12:39

Hello again,

Just been looking at judgement TC1951 (Harte) and at para 24 the Tribunal say 'a holiday home can't qualify for PRR'.

Would this scupper the scenario outlined in my original post!?

Thanks

 

 

 

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