Taxpayers’ claims for private residence relief denied
The first tier tribunal (FTT) has dismissed the appeals of two taxpayers’ claims to private residence relief (PRR) on their second properties, finding that neither taxpayer occupied the property on which they claimed relief.
Cornelia Simpson [TC07476] purchased a one bedroom flat in Earl’s Court Square in London, which she owned between 5 June 2013 to 29 November 2013.
Simpson claimed that she was eligible for PRR on the property as it had been her only or main residence throughout her period of ownership and so the gain on sale should not be subject to capital gains tax (CGT). Simpson did not file a 2013/14 tax return to declare the disposal.
During this time, Simpson also owned another property, Coleherne Court, which was in very close proximity (500 metres) to Earl’s Court Square.
On 15 March 2018 HMRC issued a discovery assessment under section 29 TMA 1970 for £52,656.76 in respect of the chargeable gain arising on disposal of Earl’s Court Square, thereby denying the taxpayer’s claim to PRR.
On 6 June 2018, HMRC issued a penalty assessment of £14,217.32 under Schedule 41 FA 2008 for failure to notify chargeability to capital gains tax in 2013/14.
Simpson appealed the assessment and penalty and submitted her appeal to the FTT on 12 September 2018.
Property never occupied
HMRC asserted that Simpson was not entitled to claim PRR as she never occupied Earl’s Court Square as a residence. Alternatively, if she had occupied it as a residence, HMRC argued it was not the taxpayer’s main residence.
Note that in order to access PRR, a private residence should have, at any time during the period of ownership, been the individual’s only or main residence (see section 222 TCGA 1992).
The FTT found that Simpson’s evidence was not entirely credible, noting that her oral evidence at the hearing “flatly contradicted” her written witness statement in important respects.
The FTT also outlined numerous factors that indicated Simpson had never occupied Earl’s Court Square either at all or as a residence.
For example, significant changes were made to Earl’s Court Square during Simpson’s ownership, including a refitting of the kitchen with new units and changes to the flooring in the kitchen and reception room.
Despite the taxpayer arguing that she lived in the property while these works were being undertaken, the FTT stated that it “defies logic and common sense” that someone would live in a small property undergoing extensive kitchen works when there was a fully functioning kitchen in a nearby property.
Coleherne Court also remained the taxpayer’s correspondence address, including for council tax bills for Earl’s Court Square and correspondence from Foxtons relating to the sale of Earl’s Court Square.
In conjunction with a complete absence of evidence that Simpson ever ceased residing at Coleherne Court, the FTT dismissed the taxpayer’s appeal and denied her claim to PRR.
Less than one month after the Simpson case, Judge Greg Sinfield once again found himself ruling on a PRR appeal.
Carol Adams [TC07552] appealed against a closure notice issued by HMRC in respect of her 2013/14 tax return. HMRC’s amendment resulted in an additional tax liability of £43,103.48, which related to a gain made on the sale of Adams’ property in Hampstead on 24 February 2014.
The property was purchased in 1994 and was subsequently let to tenants between 1995 and 2013.
Adams maintained that she occupied the property as her main residence for the last six months of her ownership, from 14 August 2013 to 23 February 2014. This meant she qualified for PRR, and so the last 36 months of her period of ownership (per legislation at that time) should not be chargeable to CGT.
Like Simpson, Adams had more than one property during her ownership of the Hampstead property.
Namely, she owned Wellington House in Belsize Park at the time she purchased the Hampstead property. Subsequently, she sold Wellington House and purchased the Wild Meadows Livery in East Sussex in September 2007.
Appeal dismissed by FTT
HMRC argued that PRR did not apply on sale of the Hampstead property as Adams never occupied it, or that if she had it was never her main residence, leaving the entire gain chargeable to CGT.
The FTT found that, on the balance of probabilities, Adams did not occupy the Hampstead property as either her residence or main residence and so was not eligible for PRR on its sale.
This decision was influenced by a range of factors, ranging from a lack of credibility in Adams’s evidence to the fact that she kept her two dogs at the Wild Meadows Livery while she claimed to reside in the Hampstead property. Additionally, photographs of the Hampstead property showed no personal belongings on display when it was advertised for sale on Zoopla in October 2013.
Even if the FTT was wrong in its conclusion, it noted that Adams had formed an intention to sell the property before moving into it, showing that the taxpayer never intended to occupy the property “permanently or with any degree of continuity.”
In light of the upcoming April 2020 changes to private residence relief, both cases serve as a timely reminder that the application of PRR is not automatic, especially where second properties are concerned.