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PPR claim

How to make a PPR claim

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Possibly more of a rant...

Our client is a trust.  one of the beneficiaries lived in a trust property, with the agreement of the trustees.  We have submitted a signed claim for PPR relief on the sale of the property.  There is no CGT to pay and the trust has now been wound up.

HMRC have written back and stated  "The PPR relief must be correctly claimed, therefore a final trust and estate tax return is required".  I don't have a problem with filing a tax return (it will be for 2020/21 and this will be the only entry) but since when was an election signed by all relevant parties not sufficient?  And why can we only claim PPR via a tax return.

Just seems like we got Mr Picky revieiwng the case....

Replies (23)

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Ivor Windybottom
By Ivor Windybottom
14th Sep 2020 14:22

Maybe HMRC need the Return and related CGT comp to be able to decide if they wish to open an enquiry into the PPR.

However, you may get somewhere if you tell HMRC the trust is no more and there's no tax anyway, so don't waste everyone's time.

What is this " a signed claim for PPR relief " of which you speak?

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By richard thomas
14th Sep 2020 22:18

Like Ivor Windybottom I am perplexed by your reference to a signed claim for PPR “relief”.

Where a dwelling house was the main residence of an individual throughout their period of ownership or in the case of a beneficiary of a trust throughout their period of occupation, then any gain made on disposal of the dwelling house by the individual owner or the trustees is simply not a chargeable gain: it is exempt.

Therefore no liability to tax has to be notified under s 7 TMA (it is only “chargeable” gains that trigger notification) and no return is required of the gain. This is made clear in Helpsheet HS283, page CGN 1 of SA 108 Notes (Capital Gains). SA 900 Q5 on page 3 and SA905 (Notes on Trust & Estate Capital Gains) on page TCN 2 state that you do not have to complete the capital gains pages if the chargeable gains do not exceed the annual allowance (and since they are nil, this is the case). TCN 3 in referring to reliefs to be claimed omits any reference to an exempt gains as a result of it being a beneficiary’s PPR.

However SA 905 TCN15 is odd, and may be what prompted the OP to act as they did. It starts by saying:

“Reliefs from Capital Gains Tax are given in different ways to meet different purposes. Some reliefs are given automatically and so you do not need to make a claim. Take account of the amount of any relief that is due, even if it is 'automatic', when you work out gains and losses.

Some reliefs are only given if you claim them. In some cases you can make a claim in the tax return. In others you must make the claim on a separate form which you attach to the tax return. (See notes on completion of column G on page TC 1 and TC 2.)”

PPR relief (ie exemption) is or should be automatic because there is nothing in s 225 TCGA (trustees) or anywhere else in TCGA, particularly sections 222 to 224, that requires a claim to be made in or outside a return, unless s 260 TCGA has applied (see s 226A). The OP does not suggest that that was the case. However TCN 15 goes on to say:

“Trustees are entitled to claim relief when they dispose of the only home of an individual who is entitled to occupy it under the terms of the settlement.”

No claim is required. Ironically trustees are then referred to HS 283 which says at Part 1:

"If you meet all of [the PPR relief] conditions, you will not have to pay CGT on the disposal. You will not need to complete the Capital Gains Tax summary pages of your tax return if you’ve made no other disposals or chargeable gains and do not wish to make any capital gains claims or elections. Read page 5 of the tax return guide for more information."

Yet part 2 says:

"Trustees of settled property and personal representatives may claim relief in some circumstances, as explained below."

And Part 8:

"The trustees of a settlement may claim relief (see 'how to claim relief'*) if they dispose of the only or main residence of a person entitled to occupy that residence under the terms of the settlement."

*my apostrophes in place of indicating a hyperlink.

“How to claim relief” is Part 10 and says:

“In your computation of the gain on any relevant disposal included with the Capital Gains Tax summary pages CG 1 to CG 4, either in box 54 on page CG 3 or in your attached computation, write that ‘Private Residence Relief is claimed’ and state the amount of relief claimed. In addition enter code PRR (where Lettings Relief does not apply) or LET (where Lettings Relief does apply) in box 8."

Box 54 (which is on page CG4, but never mind) is the white space. Since there is no claim or election involved, the requirement to complete Box 8 does not apply.

I must stress that if the gain is not entirely exempt then the statements in HS 283 may apply, but they emphatically do not if the whole gain falls within s 223(1) (as applied by s 225(1)(a)).

Thus your “signed claim” is wholly irrelevant to the tax position of the trustees. It is neither a claim made in a return nor a claim made outside a return. “Claim” for the purposes of s 42 and Schedule 1A TMA means a claim for which provision is made in the Taxes Acts: there is no such provision here.

HMRC are therefore wrong to say that:

“The PPR relief must be correctly claimed, therefore a final trust and estate tax return is required”.

Apart from the fact that if it were a claim, it could be made outside a return in the circumstances of this case (as with the death of taxpayer) because no return has been required, it does not have to be “correctly claimed” as it is not “claimed” at all.

The trustees simply had no chargeable gains for 20/21, and if they are required to make one by being issued with a notice to file on 6/4/2021 (or earlier) they simply answer Q5 in the negative.

The answer to the OP’s question:

“since when was an election signed by all relevant parties not sufficient?”

is that it has never been necessary. And to their question:

“And why can we only claim PPR via a tax return?”

The answer is: you don’t have to, because you don’t have to claim.

As to Ivor Windybottom’s suggestion that HMRC need a return to check whether they need to open an enquiry, they don’t. They can ask questions about the exemption and if not satisfied they can make a discovery assessment. They are lucky they’ve been told, as there is no obligation to return anything about the gain.

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Replying to richard thomas:
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By Tax Dragon
15th Sep 2020 07:01

It is a pleasure simply to read your contributions. The depth of detail and forensic nature of the analyses is uplifting. I have had the honour of working with some high-level tax professionals that I would aspire to, but never could, emulate. I miss that, now that my work has changed. Your contributions restore the joy of tax, for someone like me.

It would be remarkable to provide such analyses and never to make an occasional slip. I wonder, does

richard thomas wrote:

PPR relief (ie exemption) is or should be automatic because there is nothing in s 225 TCGA (trustees) or anywhere else in TCGA, particularly sections 222 to 224, that requires a claim to be made in or outside a return, unless s 260 TCGA has applied (see s 226A).

overlook Sch22 and para4(5) of FA 2004? Or am I missing the effect of that provision?

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Replying to Tax Dragon:
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By richard thomas
15th Sep 2020 09:01

No you are quite right: the error is mine. I will rewrite the post later today. But HMRC are still wrong.

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Replying to richard thomas:
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By richard thomas
15th Sep 2020 14:19

This is my revised post.

"Like Ivor Windybottom I was perplexed by your reference to a signed claim for PPR “relief”. But with many thanks to Tax Dragon (and others subsequently), I now see what the OP was doing. Section 225(1) in its fullout words does require a claim by trustees.

HMRC are still however wrong to reply to the OP to say that:

“The PPR relief must be correctly claimed, therefore a final trust and estate tax return is required”.

A claim required by any provision of the Taxes Acts must be made in a return if a return has been required by s 8A TMA. In this case it hasn’t and won’t be for some time, so by s 42(11) TMA Schedule 1A TMA applies, and the signed claim is therefore a claim under this Schedule. HMRC are required either to give effect to the claim (paragraph 4) or to enquire into it (paragraph 5). They haven’t done the latter yet, but there is still time. They cannot do anything to actually give effect to the claim except by doing nothing as no repayment is due.

The OP refers to their willingness to make a return for 20/21 in due course, with nil figures. If they do that then I think the fact that PPR exemption has to be claimed means that the gain counts as a chargeable disposal and Question 5 in Step 2 of the SA 900 needs to be answered “Yes” (assuming the house was sold for more than £48,000) and “Yes”.

The OP then needs to complete SA 905 page 1 with the calculation of the gain and an entry in column G for the claim and nil in column H. Then they need to complete page TC 3 (mostly with nil), and the first part of TC 6.

Once again apologies for the garden path down which I may have led people.

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Replying to richard thomas:
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By cathygrimmer
15th Sep 2020 09:01

A claim is required because of Section 225(1) which says:

"but section 223 (as so applied) shall apply only on the making of a claim by the trustees."

PPR for trustees ceased to be automatic for disposals after 10 December 2003.

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By snickersinatwix
15th Sep 2020 08:29

Thank you all very much for your responses. I submitted a claim for PPR relief (along with calculations showing that no tax was due) because Tolleys Guidance says:

The gain on the sale of a residential property (together with its grounds) held in trust will be wholly or partly exempt if, during the period of ownership by the trustees:

•the property has been occupied by a beneficiary of the trust as his or her only or main residence, and
•the beneficiary in question is entitled to occupy the property under the terms of the trust (discussed at the end of this note)

TCGA 1992, s 225

A similar relief is available on the disposal of a property by the personal representatives of a deceased person. See the Capital gains tax during administration guidance note.
TCGA 1992, s 225A

The relief is only available to trustees if a claim is made. It does not apply automatically as with individuals. A claim must be made within four years of the tax year in which the disposal occurred.

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Replying to snickersinatwix:
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By cathygrimmer
15th Sep 2020 09:09

That's correct. A claim is required under Section 225(1) - since 10 December 2003. Before that it was automatic.

There should be no need to submit a return once a valid claim has been made. I'd be inclined to tell them the trust has been wound up and a valid claim has been made under Section 225(1). As has been mentioned, if they think the claim isn't valid (e.g. the beneficiary didn't live there or it wasn't under the terms of the settlement) they can issue a discovery assessment. But, having said that, it might be easier to just submit a return!

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Replying to cathygrimmer:
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By snickersinatwix
15th Sep 2020 09:12

Thank you very much Cathy - I thought I was going slightly mad after the other responses. It probably is just easier to file a tax return now as this will be the only entry - it will be a 2021 tax return, so can't do it yet. I am just irritated by HMRC's response!

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By leeanthonyblackshaw
15th Sep 2020 09:59

We had a similar issue with a claim for holdover relief when a trust closed. We informed HMRC of the trust ending and sent a copy of the holdover election.

HMRC responded to say a tax return was needed. We asked if they were issuing a notice to file under TMA 1970, s8A. They said no (although the HMRC staff member didn't seem to know what a notice to file is).

Our final letter was to ask that they either close their file or issue a notice to file.

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Replying to leeanthonyblackshaw:
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By Tax Dragon
15th Sep 2020 10:44

That's particularly wrong-headed of HMRC as a holdover claim is joint and the trustees therefore could not make it in a Return even if they wanted to. A holdover claim having validly been made, leaving no gain in charge, I suspect the analysis Richard provides above kicks in in relation to notification and Return obligations. (So when Richard says he will rewrite the post, I hope he means instead that he will add a new post to include the effect of FA 2004 Sch22 para4(5).)

Unlike holdover, the claim introduced by para4(5) is unilateral and could be made in a Return.

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By snickersinatwix
15th Sep 2020 13:19

Just for laughs, I have written to HMRC asking what they mean.... Why do we need to file a tax return?

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By snickersinatwix
15th Sep 2020 13:20

Just for laughs, I have written to HMRC asking what they mean.... Why do we need to file a tax return?

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Replying to snickersinatwix:
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By [email protected]
15th Sep 2021 18:31

Hi Snickers,
I know it is only a year ago, but I was wondering if you had received a response from HMRC and an explanation of exactly what they mean?

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Replying to [email protected]:
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By snickersinatwix
16th Sep 2021 08:41

I did receive a response (eventually - after more than 3 months) asking lots of stupid questions and telling me I could do an "in year" return if the trust had ceased, but still refusing to accept what we had sent in as being sufficient. I gave up at this point and just filed a 2021 tax return after 5/4/21.
I am glad HMRC have the time to waste with this kind of nonsense. It could have all been quietly sorted last summer, but instead they wasted my time and theirs with pointless (and incorrect) bureaucracy

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Replying to snickersinatwix:
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By [email protected]
16th Sep 2021 09:52

Thanks for replying. That is really frustrating, but unfortunately is what happens when these "outside of the box" events happen. It is just easier to say do a Return.

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By Justin Bryant
15th Sep 2020 14:09

I recall long debates with people here on this and RT has proved me right, except for the trustee OMR claim exception, which also I think used to apply re NRCGT returns (in fact, come to think of it I think there was an OMR box to tick re NRCGT returns generally).

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Replying to Justin Bryant:
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By Tax Dragon
15th Sep 2020 15:03

Yes, much of what Richard says here is of wider application. (And I am therefore grateful to him for leaving both posts - complete with garden paths, warts and all - in situ.)

In relation to s7, disclosures, 30-day reporting and similar, you may be interested in some of Richard's comments on other recent threads, including that timed at 20.40 on 2nd Sept on https://www.accountingweb.co.uk/any-answers/30-day-cgt-reporting-of-resi....

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Replying to Tax Dragon:
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By Justin Bryant
15th Sep 2020 16:52

But that's all trite stuff, as RT would agree (possibly not trite for you though)

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Replying to Justin Bryant:
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By Tax Dragon
15th Sep 2020 17:17

Then I miss the point of your comment currently timed at 14.09.

You know, you could learn a thing or two from Richard. Not technically, of course, because you are both omniscient and faultless in that regard. But in terms of:
a) explaining what you mean;
b) adding new posts, rather than editing old ones; and
c) acknowledging the error on the rare occasions when you do misspeak.

OK that's three. But hey, I'm still learning to count. And nobody expects the Spanish Inquisition.

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Replying to Tax Dragon:
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By Tax Dragon
16th Sep 2020 10:37

To remove a possible accidental ambiguity in the above comment, I meant "both omniscient and faultless", not "you both".

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Replying to Justin Bryant:
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By richard thomas
16th Sep 2020 09:53

No I don't agree that it's "trite stuff".

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Replying to richard thomas:
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By Justin Bryant
16th Sep 2020 12:21

Noted. Here is the exception trustee wording:

https://www.legislation.gov.uk/ukpga/1992/12/section/225/2020-04-10/data...

"but section 223 (as so applied) shall apply only on the making of a claim by the trustees"

[Edit, sorry, someone said that above already, but without link to legislation!]

Confirmed re new CGT reporting here: https://www.parliament.uk/business/publications/written-questions-answer...

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