CGT: Quick flipping was not trading

Between December 2010 and March 2016, Mark Campbell bought and sold four residential properties, generating gains of around £260,000. The longest period of ownership amounted to two years and four months. The shortest period was around nine months.

In August 2017, HMRC wrote to Campbell asking him to submit a 2015–16 tax return, as HMRC had information that Campbell had disposed of a property other than his main home (8 Wigshaw Lane).

Campbell lodged his 2015–16 return and claimed private residence relief on the disposal, arguing that the gain was exempt as he was living in job-related accommodation (JRA), and intended to occupy Wigshaw Lane as his main residence throughout his period of ownership.

HMRC disagreed that Campbell was living in JRA and opened an enquiry into the 2015–16 return. Following further exchanges of correspondence and requests for information, HMRC issued a closure notice under section 28A TMA 1970 for 2015–16, and discovery assessments under section 29 TMA 1970 for 2012–13 and 2014–15. HMRC also issued penalties under Schedule 41 FA 2008 for failure to notify liability to tax.

Campbell appealed [TC08398], with the appeal decided as a default paper case at the first tier tribunal (FTT).

Was there a trade?

The first issue the FTT considered was whether the sales of the four properties were trading transactions.

HMRC argued that the properties Campbell purchased were redeveloped and then sold at profit, an activity that bore the hallmarks of trading. The repeated nature of the activity also suggested a profit-generating motive.

Campbell, on the other hand, argued that he was not a trader and that the properties were purchased with the intention that he would reside in them (although for various reasons, he did not).

The FTT found that Campbell had been very active on the property market over a relatively short period of time, had relatively short periods of ownership for all but one of the properties, and did modify the properties in order for them to be sold, and that this generated a profit.

However, this did not result in a conclusion of trading. While the FTT acknowledged that a single badge of trade can be sufficient to show trading, the FTT ultimately found that Campbell was not a professional property developer and was not carrying on a trade. His activities had no connection with an existing trade, and there was no evidence to support a finding that Campbell had engaged in a similar activity over a protracted period of time.

Job-related accommodation

As there was no trade, the CGT provisions were in scope of the gains made on sale of the properties.

The FTT proceeded to consider whether Campbell was living in JRA.

Campbell argued that section 222(8) TCGA 1992 should apply to the gains arising on two of the properties, on the basis that he intended to reside in these properties, but had to reside in JRA. Section 222(8) TCGA 1992 does not require actual occupancy for Private Residence Relief (PRR) purposes if there is an intention to occupy.

The JRA in question was his family home, which he lived in to care for his sick father, who was diagnosed with front lobal dementia.

The FTT did not accept that Campbell lived in JRA. Reference was given to Campbell’s own written evidence, in which he considered his residence at his parents’ property to be residing “at home”, that is the accommodation was not provided for the purposes of employment, but rather was a family arrangement.

No relief available

Even though the FTT found Campbell was not living in JRA, there was still the question of whether PRR under section 222 TCGA 1992 was available for any of the properties.

The FTT found that, overall, Campbell did not intend for any of the properties to become his main residence. There was no degree of permanence, continuity or expectation of continuity for any property.

Aside from an overall lack of documentary evidence to support a PRR claim, such as utility bills or changes of correspondence address, council tax records for all properties were classed as long-term empty. The exception was 28 Bramshill Close, which was occupied for around nine months.

However, the FTT found that Campbell had spent time in 28 Bramshill Close because he could not get the property off the market. As Campbell had already placed the property on the market prior to moving in, his occupation of 28 Bramshill Close was more akin to a stopgap.

Consequently, no PRR was available for any of the properties.

The appeal was dismissed.

Comment

In this case, no relief was available under section 222 TCGA 1992. However, it is worth mentioning (and was an argument advanced by HMRC) that any relief available under section 222 TCGA 1992 is subject to section 224(3) TCGA 1992, which can prevent relief where the purpose of the acquisition was to realise a gain, or can limit relief where expenditure is incurred for the purposes of realising a gain.