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Timely article on quality of residence. For a planning conundrum posted earlier for a married couple owning 2 residences where husband owns and lives regularly in the London pad.
I wondered about the quality of residence required of his wife, given he's never nominated a residence, and would be advised to do so. Law requires it to be a joint nomination because they are married. The planning opportunity is for him to first transfer ownership to her, then they make the nomination. But whilst his quality of regular residence, both before letting and since letting ended in the last year, has long been demonstrable, hers is much less so. Just how much does she need to be present and evidenced as such alongside hubby if she were to become sole (or joint) owner? It's that question of quality!
I'm glad Jennifer has highlighted what a complex area this can be- even in what can look like very simple circumstances.
I'm dealing with more and more of this sort of case where HMRC are challenging PPR relief claims.
One in particular will probably end up going to the FTT if HMRC can ever stop asking questions and agree to a meeting with the client, which has been refused so far.
If it ever gets resolved I'll be sure to post an article up on it as it has similarities to the Dutton case.
The Susan Bradley case is the most worrying, if you read the case itself I believe that the Tribunal judge made a fundamental mistake in attributing a motive of sale where the property had been placed on the market and just not taken off, by a woman who the judge accepts was suffering from depression and receiving medication. It was also complicated by the fact that there were two properties that had been one. One, the smaller of the two was vacant when she and her husband separated, but only had a small single bedroom preventing her daughter (who was 16) from visiting overnight. She moved from this into the contentious property when it became vacant some six months later, and then continued to live in that larger property until sale and reconciliation. I'm not sure, having read the case, that she was particularly well represented. These cases can so often be a lottery.
I have a question about how a sale is declared on the tax return. If someone sells a house which is, say, 75% PPR (because they only lived their 75% of their period of ownership), they declare the full disposal on the CG pages and claim 75% PPR. But if they are entitled to 100% they declare nothing on the CG pages. Normally if someone is entitled to 100% relief (eg roll-over relief) they would still declare the sale then claim the relief. So in the case of 100% PPR is it correct not to declare the sale at all or should we be declaring the sale then claim 100% PPR?
I have a question about how a sale is declared on the tax return. If someone sells a house which is, say, 75% PPR (because they only lived their 75% of their period of ownership), they declare the full disposal on the CG pages and claim 75% PPR. But if they are entitled to 100% they declare nothing on the CG pages. Normally if someone is entitled to 100% relief (eg roll-over relief) they would still declare the sale then claim the relief. So in the case of 100% PPR is it correct not to declare the sale at all or should we be declaring the sale then claim 100% PPR?
HMRC help notes to the capital gains tax section of the return states:
"You don’t need to fill in the ‘Capital gains
summary pages if you only sell or dispose of:
your main home, if you qualify for Private
Residence Relief on the full amount of the gain"
So you don't need to report it, but if you thought it advisable you could disclose the sale in the white box on the main return.
I was at a SWAT course last week on a capital taxes refresher including PPR.
I asked the lecturer for her personal view as to the minimum amount of time needed for occupancy where HMRC were unlikely to challenge a claim. She said 12 months.
Does making an election make it more likely that there will an enquiry on ultimate sale?
As below, if 100% PPR eligible, there is nothing to declare and enquiries and the fuss had by Ian rarely happen.
Client has situation where it might be worth considering an election where the main home is clear to me, but to put it beyond doubt as not all the items on the shopping list of evidence are available. Client would prefer to run with the facts than have an increased risk of an unnecessary fuss on ultimate sale.
Does making an election make it more likely that there will an enquiry on ultimate sale?
As below, if 100% PPR eligible, there is nothing to declare and enquiries and the fuss had by Ian rarely happen.
Client has situation where it might be worth considering an election where the main home is clear to me, but to put it beyond doubt as not all the items on the shopping list of evidence are available. Client would prefer to run with the facts than have an increased risk of an unnecessary fuss on ultimate sale.
I would like thoughts on this too. I put a similar situation to a tax lecturer this week, who simply asked me back 'which is the main residence?' as a matter of fact.
However, I was contemplating a nomination to absolutely secure the stronger residence and ensure the secondary residence wasn't deemed a main residence at the time of a transfer to spouse. The success of the inter spousal transfer for washing out all gains depends on the gifted property not being a main residence.
I am grateful to qwer78 for raising this; should we risk a nomination flagging to HMRC what should, if tested, be a non issue with 2 homes?
If you have two properties (or more but just run with two) and both have genuinely been a residence at some time then you are entitled, in law, to decide which is your main residence without any question as to which is actually your main residence. Over the last ten years the vast majority of cases that HMRC have taken to the tribunal have been cases where the taxpayers did NOT make the election and so had to rely on an argument that the property was, at that time, their main residence in fact and they generally failed. If you have evidence that it was a residence election removes the element of doubt. After all how many residences does out Queen have? Balmoral, Windsor, Buckingham Palace, Sandringham - they are all her residences - which is her main residence? If she was taxable(which she isn't) she would use the election under s222(5) to determine which is her main residence BY ELECTION...
If you have two properties (or more but just run with two) and both have genuinely been a residence at some time then you are entitled, in law, to decide which is your main residence without any question as to which is actually your main residence. ... If you have evidence that it was a residence election removes the element of doubt....
Yes, as I understand HMRC to instruct in their guidance.
So I'm intrigued why a tax lecturer suggested to 'let it be' (ie not nominate first home as the main residence) unless because it raises a red flag when nominations are changed on a new ownership. It concerns a spousal transfer of a 100% owned city flat by one spouse 100% to the other spouse, washing out all the gain accumulated to transfer.
From Nichola Ross Martin, I understand this only happens on a transfer between spouses/CPs of a property which wasn't a main residence at the time of transfer. The couple can then elect second home as PPR and keep using before eventual PPR relieved sale. Seems too good to be true which makes me consider the GAAR.
The election under s222(5) can only be made within two years of the acquisition of a second or subsequent residence and a transfer between spouses will not be an effective acquisition for this purpose - hence you could argue that making an election that can't be made is going to attract interest from HMRC. On a transfer between spouses the assets transfers not at the MV at the date of transfer but at a price which gives rise to neither gain nor loss at the date of the transfer, since the abolition of indexation allowance this is usually equal to the cost of acquisition plus any subsequent enhancement expenditure. If the couple, or one of them acquires another property this can revive the right to make the election.
If the couple, or one of them acquires another property this can revive the right to make the election.
The client has recently changed his combination of residences through tenant leaving the property he'd transfer, so is in good time to nominate.
Think I'd be happier if he lets the property again whilst in his sole ownership, then transfers whilst let. This puts beyond doubt it's use when transferred.
But he shouldn't need to! the nomination of the other (first) home, whilst there are 2 occupied residences and before transfer should suffice.
I'm not happy about leaving the status open to HMRC's view, but alarmed at 1) a tax lecturer's suggestion it is left and assumed a matter of fact and 2) multiple nominations either side of a transfer possibly raising a red flag.
Can I suggest you read the legislation, if a property which was let is acquired with the tenant in place, then the two year period runs from the date of the enant leaving but this is not what you said at the beginning - by the way, I am a tax lecturer. Maybe you need to get into the habit of setting out the full facts if you want a full answer...
Many thanks for your input Paul. Always appreciated. The fact that tenant left last year is in my very first post above; but agree it gets lost in what follows. Pretty familiar with the leg and manuals, not so familiar with how it pans out in practice. So value the feedback. Thanks. Jim
The trouble with PPR and clients is that some clients rent out multiple properties and when one is sold, guess which one they claim is their PPR.
Mind you if just a few days is sufficient ;)