Principal private residence: Reside or residence?
A recent First Tier Tribunal case considered the availability of Main Residence Relief under s222 TCGA 1992 in the context of a property that had only been occupied for a short period of time. The case involved Patricia Lam (Mrs Lam) and her husband.
Background of the case- Mr and Mrs Lam were an elderly couple who had sold their property in Hertfordshire and moved into a rental property on Corbyn Street in London. After a year of residing in rented accommodation, they made the decision to purchase a two-bedroom bungalow on Barnes Rise. The property was described by the estate agent as “in need of updating”.
After a few months of residing in the property Mrs Lam submitted a planning permission to their local council. Plans for roof alteration, build two further bedrooms upstairs and convert the downstairs into an extended kitchen and a family room were approved by the Council. It was intended that they would move into the property upon completion of the alterations.
They did for a short period reside in the property during the week and would return to London each weekend, where their children lived.
Due to turbulent weather and high winds, the roof of the property collapsed making it unsafe and uninhabitable for Mrs and Mr Lam to reoccupy the property.
Building work commenced following receipt of the Council approval but took longer than expected.
During the period of delays, Mr Lam had a stroke and was treated at a hospital near their rented property. The property was close to their daughter who was a nurse and only a mile away from hospital where Mr Lam had been treated.
Upon completion of the alterations to Barnes Rise, it was sold at a profit. It was argued by the taxpayer that due to the domestic setbacks at the property and the medical treatment needed by Mr Lam, influenced their decision to sell the property.
No disclosure or tax was paid through Self-Assessment on the basis that the property was intended to be their main residence and they resided in the property, albeit a short period of time. The period of occupation would be exempt followed by the last 18 months which is exempt under S222 TCGA if the property had been main and only residence at some point during its ownership. The legislation provides relief on the basis “a dwelling-house or part of a dwelling house which is, or has at any time in his period of ownership been, his only or main residence”.
It was also argued that there is no minimum period of occupation required for an individual to establish a residence.
HMRC contended that Mr and Mrs Lam moved into the property with just two sleeping bags implying the move was not permanent and they never managed to establish Barnes Rise as their main residence. In addition, some degree of continuity, some assumption of permanence was vital to turn simple occupation into residence.
The couple failed to move any furniture, kitchen equipment of personal possessions, that would have been essential for them to actually live in the property.
No evidence had been provided of a change of address, television license or registered doctor. Without such evidence and in absence of an election to claim Barnes Rise as their only residence, the appeal was refused.
Mrs Lam and her husband intended to develop the property but their intention did not materialize. Sale of the property generated a gain, making capital gains tax payable. Failure to make a disclosure in their personal tax returns was treated as carelessness on part of the tax payer; penalty on the tax liability was also upheld.
This case acts as another reminder to taxpayers to ensure that they retain clear evidence to demonstrate that a property has become a residency for their purposes, as soon as possible on moving in. This should include evidence of moving personal effects to the property, registering to Vote, informing DVLA, obtaining a TV licence and phoneline, changing doctors and children’s school etc. This will become particularly more important where circumstances change and the property is only actually occupied for a short period.