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CGT - PPR and Illegal Occupation of Main Residence

Client Occupied Sole Main Residence Which Had Agricultural Tenancy

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Client is about to sell his countryside home and surrounding fields. House and garden occupy just less than an acre and the abutting 50 acres of fields have been used for seasonal grazing by a farmer.

At first glance it appears clear cut. House and gardens worth around £1 million are CGT free and adjoining fields worth £1 million are liable to CGT.

But client is now fretting. He said that between 1982 and 1998 (16 years) the house was subject to an agricultural tenancy (which was lifted in 1998). Apparently, this meant that 3/4 of client's income was supposed to be derived from the land he owned.

As it turned out, income from these fields was minuscule in comparison with his other private and investment income. So he is worried because he feels that he occupied his home (and land?) illegally, until the tenancy was lifted in 1998.

He is worried in case HMRC say he cannot have PPR exemption for the period 1982 to 1998. I said in my view HMRC will not be concerned at all with such an illegal occupation. The fact is that this home has been his sole residence from 1982 to date, and that is all HMRC will be concerned about.

Am I correct. Or is client right to be worried.

Replies (9)

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By Accountant A
05th Dec 2019 16:45

Not sure PPR relief requires consideration of "legality"of occupation, does it? Surely (and without me looking at the legislation!) it's a question of fact whether a property has been your PPR. I don't really understand the point your client is making but as long as you have a "filing position" then claim PPR and see what happens.

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By JDBENJAMIN
05th Dec 2019 19:38

I don't understand the question. In 1982 did he buy a long lease , with a large premium? Otherwise I don't see how there would be a capital gain for 1982-98 at all if this was any sort of tenancy.

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By Tax Dragon
05th Dec 2019 17:52

So he (thinks he) breached the terms of an ancient agricultural covenant or something. I live on an estate where every property is subject to a covenant to maintain boundary barriers formed of a fence atop a wall. Quite a few still comply; quite a few don't. It's absolutely nothing to do with the tax rules for PRR and HMRC could not give a flying stuff. In short, the covenant here is not with HMRC (actually, I have no idea who it is with!) The occupiers of the properties in breach still, as fact, occupy those properties.

It'll be the same with your chap. And AA is close to correct – the only point I'd add is that it's not a claim. You have to apply PRR if the conditions are met.

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By JD
05th Dec 2019 18:22

Could this be a 106 Agricultural Tie (planning restriction) rather than some sort of tenancy?

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Replying to JD:
By penelope pitstop
05th Dec 2019 23:52

Let me get chapter and verse from him first.

When he first mentioned the agricultural tenancy I wondered where he, as landlord and occupier, was coming from. I did ask him to confirm what he was referring to and all he could do was mention the agricultural tenancy he was fretting about.

So, let me get the facts first.

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Replying to JD:
By penelope pitstop
06th Dec 2019 11:54

Have discussed the issue with client again. I mentioned that I found it difficult to understand why he keeps referring to "agricultural tenancy" when he owns the freehold.

I mentioned s106 and he said "that's it". He then said that by living in his house for 10 years he was able to obtain a certificate of lawful (legal) development, or something like that. His solicitor told him that everything is alright.

I still do not quite understand what he is talking about. He then mentioned something about receiving 70% of income from an agricultural tenure (it was 75% before)

All I can imagine is that he used the house as a main residence with some incidental agricultural use. To get around the restriction he must have granted a license for a nearby farmer to graze his sheep or cattle, with my client managing the upkeep of the fields.

But I cannot imagine that anything to do with the field USE will enter the CGT calculation. And the fact is that his house and garden have not really been used for business purposes. So PPR CGT exemption does not appear to present any tax disclosure problems, and so the gain on the house will be entirely CGT exempt.

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Replying to penelope pitstop:
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By JD
09th Dec 2019 17:26

Presumably PPR for a main residence is only restricted where there is exclusive business use for all or a part of a building. Even if you have mixed use, then I believe you should still be fine.

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Replying to JD:
By penelope pitstop
09th Dec 2019 17:44

Thanks. I would agree.
I do not think there has ever been any exclusive business use of home.
Certainly, no use of home has ever been claimed against the grazing license income from the fields.

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By CJaneH
06th Dec 2019 16:25

The words you are looking for are 'Agricultural Restrictions' also known as Agricultural Ties.

Outside my skill set but local authorities only allow property to be built if occupant works on land. Also some times allowed for retired farmer.

Contacting an agricultural Chartered Surveyor might enable you to get a better grasp on what your client is referring to.

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