Very interesting PPR case

Taxpayer won

Didn't find your answer?

HMRC kindly explain a good CGT scheme at para 62: https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08502.pdf

Well done to the taxpayer's barrister, but expect an appeal.

Replies (33)

Please login or register to join the discussion.

avatar
By Tax Dragon
10th Jun 2022 18:39

Justin Bryant wrote:

HMRC kindly explain a good CGT scheme at para 62

...and the taxpayer pointing out the anti-avoidance rule...

Judge Allatt again though... she can't be wrong every time, can she? I thought you thought that was my role in life.

Thanks (0)
Replying to Tax Dragon:
avatar
By Hugo Fair
10th Jun 2022 19:33

As the song has it ... "I was looking back to see if she was looking back to see if I was looking back at her"!

Thanks (2)
Replying to Tax Dragon:
avatar
By Justin Bryant
11th Jun 2022 17:36

Why on earth wouldn't the taxpayer point that out as it only helped their case (their barrister is not an idiot you know)? You need to read (and understand) these cases properly I think.

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
11th Jun 2022 22:07

I was obviously replying in kind - the HMRC comment you mentioned was, similarly, to help their case. (There would be a horrible irony if HMRC now sought to apply s224(3)...)

But here's my bet as to how this will actually go: HMRC will appeal* and win, but it will be something of a hollow victory because, applying s224(2), the court will find it just and reasonable to exempt most of the gain.

* They need to appeal (not just apply s224(3)) because they need to change the precedent.

Thanks (0)
Replying to Tax Dragon:
avatar
By Justin Bryant
12th Jun 2022 18:49

That HMRC will appeal is pretty bleedin' obvious. As for your more precise prediction, it is anyone's guess, but HMRC usually win their appeals as we all know as judges tend to be biased in their favour the higher up you go, although the recent Higgins PPR case was a notable exception.

Thanks (0)
avatar
By bernard michael
13th Jun 2022 10:59

A local developer I know (not a client) outlined that he was doing just that 12 months ago and that he could similarly claim the PPR. I expressed doubts that he would succeed but he went ahead with building the property anyway.

Thanks (0)
Replying to bernard michael:
avatar
By Justin Bryant
13th Jun 2022 11:49

Yes; it's odd that the judge claimed these were unusual circumstances. It's a rather typical "Grand Designs" situation and I would be surprised if the question has not been asked here a few times over the years (I'm too lazy to do a search).

Thanks (0)
avatar
By Tax Dragon
13th Jun 2022 14:37

What does para 60 add to anything? Where is the logic expressed therein (which seems in any event to have been taken entirely out of context) picked up elsewhere in the judgment?

Thanks (0)
Replying to Tax Dragon:
avatar
By Justin Bryant
13th Jun 2022 15:04

I believe it's called purposive interpretation of legislation i.e. trying to understand the meaning of legislation from its context etc. to the extent it's otherwise unclear/ambiguous. The analysis in that para is (unsurprisingly) consistent with the decision and there is even a sub-heading "Will of Parliament" that spells out her thinking/reasoning here. (Understanding logic etc. is not your strong point I recall.)

Thanks (0)
Replying to Justin Bryant:
avatar
By More unearned luck
13th Jun 2022 18:38

Why spoil arguments with ad hominin attacks, Justin? They make the debate less interesting and makes it appear that you don't believe in your response to the point. If you can't say anything nice then don't say anything at all.

The policy intent of PRR expanded in para 60 doesn't justify exemption when taxpayers by a cheaper replacement property or none at all (eg equity release which wasn't a thing in 1965). If protection from inflation was parliament's intention then a form of roll-over relief rather than complete exemption would have been a more targeted relief.

The taxpayers must have lived elsewhere during the demolition and rebuild and so possibly de facto got relief on two properties concurrently which clearly is not the policy intent of PRR ("only or main residence*"), other than any final period overlap. If this aspect of the policy had been considered the case might well have been decided the other way and may yet have a role to play in any J&R apportionment.

*This term appears 12 times in the decision. The first 11 in the extracts of the law and the twelfth in a quote from Henke, which 'precedent' the judge refused to follow.

Thanks (3)
Replying to More unearned luck:
avatar
By Tax Dragon
14th Jun 2022 09:15

The rollover suggestion refutes (IMHO) the logic in Sansom v Peay. My question was why was that logic quoted in the case Justin cited anyway? It's irrelevant to the decision, as far as I can see.

In the alternative, if the logic is somehow central to the decision, that flawed logic is defeated in this context (as I have already noted) by s224(2). There's no need to ignore s222(7) - as you have to, to find as the judge here found - just read all the sections.

Thanks (0)
Replying to More unearned luck:
avatar
By Justin Bryant
14th Jun 2022 09:30

I think you're missing the point. I don't necessarily agree with the judge's purposive interpretation. I'm just pointing it out for what it is for the benefit of TD who has admitted her lack of logical analysis to such matters here recently.

As you should know, I'm always happy to have a sensible debate with any sensible person here anytime (illogical people don't tend to be sensible).

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
14th Jun 2022 10:46

Justin Bryant wrote:

I think you're missing the point.

Maybe you don't express yourself sufficiently logically? (I don't always agree with MUL, by any stretch, but I find them - generally - very reasoned in what they say.)

Thanks (1)
avatar
By Justin Bryant
09th Oct 2023 15:23

HMRC lost their UT appeal: https://caselaw.nationalarchives.gov.uk/ukut/tcc/2023/242

Looks correct to me (and Henke is now bad law). A good PPR scheme is in para 36 (and possibly para 59) courtesy of HMRC.

HMRC are bound to change the law here (unless they successfully appeal to CoA).

Thanks (0)
Replying to Justin Bryant:
avatar
By More unearned luck
09th Oct 2023 19:33

Changing the law and appealing are not mutually exclusive.

But what would the law be changed to? A farmer client that has owned his farmland for many years. After about twenty years he got planning permission to build a farmhouse on the land and did so. He had until then lived offsite in the village. Why should a substantial part of the gain attributable to the farmhouse be chargeable, if he were to sell, be severely curtailed? What should the law say in this circumstance? Would any gain attributable to the pre-build era be potentially taxable at BADR rates?

Thanks (0)
Replying to More unearned luck:
avatar
By Tax Dragon
09th Oct 2023 22:13

When does the prebuild era end? When planning consent is sought? When it is obtained? When construction starts? When it finishes? This last would coincide with the commencement of the period of ownership of the dwelling-house, so maybe is the most logical.

It seems odd that parliament omitted to set out the basis for determining this very important question, if they intended to exempt the gain based on the answer.

What I'm getting at here of course (and in my comment below) is that it's far more likely that parliament didn't intend the exemption to apply like this. It's too much of an omission not to tell us how to establish the exempt amount. (And imho this is the argument HMRC should run. But I didn't see the point raised in the case report.)

Anyway, unlike the OP, I am not convinced by this judgment. HMRC should appeal.

Thanks (0)
avatar
By Tax Dragon
09th Oct 2023 18:07

Why is all of the gain (para1 of that judgment) attributable to the disposal of the dwelling-house (s222(1))? TCGA does not impose a charge on the dwelling-house as such (as that is not the asset sold - s288), nor does it provide a means of attributing part of the gain on the asset sold to the dwelling-house. While I can see the argument for exempting the whole gain so attributable, I don't see the argument for attributing the whole of the gain to the house.

(Apologies if this is covered above. I've read the judgment, not reread the thread.)

Thanks (0)
avatar
By richard thomas
10th Oct 2023 12:25

Memories came flooding back of my case in Northern Ireland, William & Hazel Ritchie v HMRC [2017] UJFTT 449 (TC). This was primarily a "grounds required for enjoyment" case but as it was a (very prolonged - it was Northern Ireland) self-build, a third of the gain of was not covered by PPR. Keith Gordon, for it was he, tried an unconvincing idea involving a shed during the build period, but after having considered Henke and reluctantly decided to follow it, I came up with an off the wall idea involving s 224(2) to do justice. See paras 229-260 and esp from 241, and for the entertainment of fellow Monty Python fans, read footnote 1.

Thanks (0)
Replying to richard thomas:
avatar
By Justin Bryant
10th Oct 2023 13:07

I note UT disagreed with you on the procedural DA point, so the UT did not consider the PPR calculation (which was thereby shed & buried one assumes). https://assets.publishing.service.gov.uk/media/5c87a7fb40f0b6369c4eeb8c/...
https://www.rossmartin.co.uk/index.php/sme-tax-news/3970-prr-discovery-a...
https://www.rossmartin.co.uk/private-client-a-estate-planning/capital-ga...
https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j9880/TC0...

That said, one wonders why HMRC did not adopt your s224(2) apportionment analysis in the Lee case. Perhaps they will if they appeal (since Henke has been overruled).

Thanks (0)
Replying to Justin Bryant:
avatar
By richard thomas
10th Oct 2023 13:41

Yes, I noticed that too. I have a strong feeling that KG may have inadvertently misled the UT.

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
10th Oct 2023 21:22

Justin Bryant wrote:

That said, one wonders why HMRC did not adopt your s224(2) apportionment analysis in the Lee case. Perhaps they will if they appeal (since Henke has been overruled).

No, because s224(2) cannot apply, can it? Once you have decided that the period of ownership starts with the completion of the build (at which point you own the dwelling-house), only subsequent changes of occupation and subsequent reconstructions etc are in point for s224(2).

However, once you say that the period of ownership starts when you have built your home, it does seem to follow that most of the gain is attributable to the period in which you did not have your home - ie to something other than the dwelling-house you have disposed of. Maybe very little of the gain is attributable to the dwelling-house itself.

See comments made by Tax Dragon in the last few days.

Thanks (0)
Replying to Tax Dragon:
avatar
By Justin Bryant
11th Oct 2023 09:04

That's possibly right (I have not done shed loads of analysis), but that would not stop HMRC trying to argue the point anyway would it is all I'm saying and well done to RT for drawing attention to it.

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
11th Oct 2023 11:56

That s224(2) would form part of the answer was my prediction on 11 June.

Now I understand the decision better, I realise that was a silly prediction. But it does seem to be open to HMRC to argue either that only a small part of the total gain is attributable to the house (and, as that is without reference to s224(2), there is no need for the attribution to be just or reasonable) or, in the alternative [and this in my view is the correct conclusion], that the lack of any legislative guidance as to how to attribute part of the gain to the dwelling-house demonstrates that the FTT and UT decisions do not reflect parliament's intentions.

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
11th Oct 2023 12:04

Actually... my 11 June prediction was that HMRC would win and the taxpayer argue s224(2) - maybe not so silly! But HMRC needs to win first. (And if taxpayer didn't live in the original house before the rebuild, I'm not sure s224(2) is in point even then.)

Thanks (0)
Replying to Tax Dragon:
avatar
By Justin Bryant
11th Oct 2023 12:12

But the intention of Parliament is discerned by judges from the words of the legislation (and possibly other stuff if there is ambiguity etc.) and not some general recourse to reasonableness etc. and only if those words cause absurdity etc. will judges read words into (or delete words from) the legislation and I can't see that the judges here made any error there. This rule of statutory interpretation of course cuts both ways (e.g. Lobler) and just because arguably less tax is paid than would otherwise be the case if HMRC's view was correct isn't a good enough reason for judges to effectively rewrite legislation.

Thanks (0)
avatar
By Justin Bryant
21st Dec 2023 14:09

I note HMRC has recently revised its PPR helpsheet re this case as follows:

"Period of ownership
Your period of ownership begins on the date you first acquired the dwelling house, or on 31 March 1982 if that is later. It ends when you dispose of it. If you acquire land on which you build a house, your period of ownership begins at the time the dwelling-house comes into force."

https://www.gov.uk/government/publications/private-residence-relief-hs28...

Thanks (1)
Replying to Justin Bryant:
avatar
By richard thomas
21st Dec 2023 14:20

"the dwelling-house comes into force" What on earth does that mean? A dwelling house is not a statutory instrument.

I assume they are trying to suggest that it is when the dwelling house starts to be occupied as a residence.

Thanks (0)
Replying to richard thomas:
avatar
By Justin Bryant
21st Dec 2023 16:27

I think details of that timing point were left hanging in the judgment, but one assumes that once the builder (or whoever) certifies it's been built/finished to the required standard and it thereupon starts to be occupied as a PPR then that's good enough for HMRC.

Thanks (0)
Replying to Justin Bryant:
avatar
By richard thomas
21st Dec 2023 16:39

Yes, like the VAT DIY scheme.

Thanks (0)