Gabelle Tax Analysis: First-tier Tribunal denies PPR despite election
The First-tier Tribunal – in the joint matter of Michael J Harte and Brenda A Harte (‘the Appellants’) TC01951 published on 30 April – has refused a claim for capital gains principal private residence relief (PPR) notwithstanding that the couple had completed an election in favour of the property which was sold.
One property, the original matrimonial home at Crofts Road, had been owned since the 1960s. A second, Alder Grove was inherited by Mr Harte on the death of his father in 1992 and from then until May 2007, it was occupied by Mr Harte’s step-mother.
On 21 June 2007, ownership of Alder Grove was transferred by Mr Harte into the joint ownership of him and his wife.
During the Summer of 2007, the owner of a property neighbouring Alder Grove expressed interest in purchasing it. Alder Grove was then sold to the neighbour on 19 October 2007.
On 25 August 2008, the Appellants made an election to treat Alder Grove as their main residence for the period 11 October 2007 to 19 October 2007. At all other times Crofts Road was their main residence.
It was accepted by all the parties before the tribunal that if the election were valid, the Appellants would be entitled to PPR in relation to the sale of Alder Grove. However, HMRC contended that the property had not been a ‘residence’ of the Appellants and it was therefore not possible for them to make a valid election.
The tribunal ultimately found as follows:
… the evidence does not establish that [the Appellants] ever did make [Alder Grove] their residence. They never put any of the bills into their own name. They never entertained or had friends or family to stay there. Until the property was sold, the furniture and personal effects of the first Appellant’s step mother remained in the house, as they were, notwithstanding that the Appellants say that they were not close to her. The Appellants did not move in any of their own furniture, pictures, or ornaments. They undertook no work on the property other than to repair one drain. The first Appellant said in evidence that the longest continuous period spent at Alder Grove was approximately 3 weeks. In the absence of any other evidence of what periods were spent at Alder Grove, the Tribunal is not persuaded that this information is necessarily reliable. However, even if the Appellants did spend several periods at Alder Grove, the longest being 3 weeks, the Tribunal is not persuaded that in all the circumstances such periods have the quality of “residence” within the meaning of s.222(5) TCGA.
The decision, of course, turns very heavily on its particular facts; however, it is a useful reminder of two very important points:
- Where clients own two properties is it not sufficient for them simply to sign an election ‘making’ one of those properties their PPR. An election can be made only in relation to a property which is a ‘residence’.
- The burden of proof in establishing that a property is a residence is on the taxpayer. Taxpayers will need to take clear and demonstrable steps to establish that a property is a residence – particularly where the claimed period of residence is short.