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No CGT relief for three homes sold in three years

A taxpayer who made gains of £211,506 from three homes in three years claimed CGT exemption on the basis that she occupied each as her main home for a short period. 

22nd Jul 2020
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Aqeela Hashmi [TC07715] appealed against three CGT assessments issued by HMRC under s29 TMA 1970 relating to the tax years 2013/14 to 2015/16.

Between 2013 and 2015 Hashmi bought and sold at least five properties of which three were the subject of this appeal:

  • Crown Leys, Aylesbury - sold in 2013/14 with gain of £32,629
  • Mirador Crescent, Slough - sold in 2014/15 with gain of £81,218  
  • Farm Crescent, Slough - sold in 2015/16 with gain of £97,659

Rapid turnover

Hashmi argued that she had lived in all three properties as her principal private residence and so was entitled to principal private residence relief (PPR) under s222 TCGA 1992.

Taking each property in turn, HMRC argued that Crown Leys was purchased on 28 March 2013, listed for sale a few weeks later on 10 May 2013, and sold on 18 September 2013 at a gain.

The taxpayer argued that Crown Leys was sold for practical reasons; as Hashmi was pregnant and her husband Akram worked in Slough, a decision was taken to move back to Slough.

A similar tale unfolded with Mirador Crescent: HMRC believed it was bought on 11 November 2013, listed for sale on 14 February 2014 and sold on 6 June 2014 at a gain. Extensive work was carried out to the house during the taxpayer’s ownership.

The decision to sell Mirador Crescent was attributed to an incident where Akram saw two youths trying to break in and enter the property while he stood outside, leading the taxpayers to believe that the property was not ideal for bringing up a young family.

Farm Crescent had an equally short period of ownership. HMRC argued it was bought on 16 September 2014, listed on 3 October 2014, and sold on 10 July 2015 at a gain. Again, extensive work was carried out.

The decision to sell Farm Crescent reportedly arose from the issue that the property had previously been used by criminals as a cannabis farm, and the previous owner (who lived next door) subjected the taxpayer’s family to ongoing harassment.

Only or main residence

The taxpayer relied heavily on HMRC’s guidance, putting particular emphasis on the argument that the homes had been her only or main residences during her respective periods of ownership.

HMRC claimed Hashmi’s principal private residence had been an entirely different property in Shaggy Calf Lane, Slough - throughout the three tax years under appeal.

HMRC pointed to the fact that Hashmi had obtained Volkswagen finance in April 2013 and had opened a Barclays bank account in July 2013, giving her address for both applications as Shaggy Calf Lane, when she claimed to be living at Crown Leys.

HMRC’s child benefit records also confirmed that her children were all resident at Shaggy Calf Lane. Electoral roll data confirmed that Hashmi had been resident at Shaggy Calf Lane for 11 to 15 years and Akram had also been on the electoral roll at Shaggy Calf Lane from 2011 to 2017.

The taxpayer failed to provide sufficient evidence to show that she had actually lived in the properties in question. The documents provided to HMRC across the properties included copies of delivery notes, confirmation of registration for council tax, and utility bills addressed to Owner/Occupier.

Decision

The FTT said that it was clear that Hashmi was trading in property, with the short periods between the acquisition and disposal of each property at a gain after undertaking improvements being indicative of trading. This was not an argument HMRC had put forward as if it had been upheld the taxpayer could have been assessed to income tax on the profits from the sales in place of CGT.

The FTT also referred to Goodwin v Curtis [1998] STC 475, where Lord Justice Schlemann said “in order to qualify for the relief a taxpayer must provide some evidence that his residence in the property showed some degree of permanence, some degree of continuity or some expectation of continuity.”

Hashmi failed to produce sufficient evidence to convince the tribunal that she intended to live in any of the three properties with some degree of permanence. The FTT also commented that being registered for council tax only shows ownership, not occupation.

Consequently, the FTT found in favour of HMRC, as none of the properties under appeal qualified for PPR. The appeal was dismissed.

Comment

HMRC does not just look at whether a taxpayer has occupied a property for the purposes of PPR. Consideration is also given to the quality of occupation. As noted in this case, there should be some degree of permanence, some degree of continuity or some expectation of continuity, which was clearly lacking in this appeal.

Replies (6)

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Jennifer Adams
By Jennifer Adams
22nd Jul 2020 16:42

I read Lucy's article and thought 'good'!

What was the taxpayer thinking of!

What a waste of HMRC's time and (our) money in having to defend this case.

Now if the taxpayer had done as many I know do ... buy house, do it up, live there for a year or so and then sell... then she might have got away with at least two of the properties being PPR.

What is interesting is what resources HMRC used to check the taxpayers address

"HMRC pointed to the fact that Hashmi had obtained Volkswagen finance in April 2013 and had opened a Barclays bank account in July 2013, giving her address for both applications as Shaggy Calf Lane, when she claimed to be living at Crown Leys."

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Replying to Jennifer Adams:
Hallerud at Easter
By DJKL
23rd Jul 2020 10:29

"HMRC pointed to the fact that Hashmi had obtained Volkswagen finance in April 2013 and had opened a Barclays bank account in July 2013, giving her address for both applications as Shaggy Calf Lane, when she claimed to be living at Crown Leys."

Big Brother sees everything

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By matchmade
27th Jul 2020 10:18

A property developer friend of mine based in Slough says this kind of behaviour by amateur refurbishers is extremely common; what's surprising is that the taxpayer's networks didn't warn her that her behaviour was unsustainable and lacked evidential rigour.

Of course the sensible thing would be to put all these properties into a limited company and trade like a proper businessperson, but lending policies and, let's face it, a cultural hostility in the UK towards property development from lenders, the general public and the tax system (and a matching system of favouritism towards owner-occupiers) mean it is far harder for a small company to secure mortgages than a private individual obtaining a series of buy-to-let mortgages and refurbishing off the back of that. This is why so many small-scale developers are forced into "flipping" a series of privately-obtained properties and are then crucified by being taxed on income if they fail to follow the very loose "guidance" on owner-occupation.

It's also possible, however, that the taxpayer was working from accumulated capital without mortgages and simply seeking to play the system and avoid tax. I don't condone this, but understand why people are tempted to do it because the way property is taxed in the UK is so hostile to development. Somehow it's fine to make hundreds of thousands in tax-free capital gains as an owner-occupier - in London, often more per year than your actual taxed earnings - and sequentially too if you are a "serial renovator", but if you are a landlord or builder or developer operating outside a corporate structure (often inevitable because of the sheer difficulty in obtaining mortgages, as mentioned above), you pay extra stamp duty on every property, 20% VAT (unlike 0% on new-build), and are taxed incredibly high rates of income tax.

I'm not in favour of abolishing 0% CGT on PPRs, but I do think there's a case for introducing a lower rate of tax or a lifetime allowance, so that long-term residents still get their voter-friendly tax-free "property owning democracy" bung, but serial renovators and small-scale developer-landlords will quickly use up their allowance and will be encouraged to adopt a corporate structure for their business activities. This would need to be accompanied by changes to tax and lending policies regarding refurbishment-development as opposed to new-build. Arguably we will need this anyway if the UK is ever to meet its zero-carbon amibitions as regards property, because the current rate of refurbishment and the business incentives to scale up are simply feeble.

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By raycad
27th Jul 2020 10:37

I think the taxpayer got off extremely lightly here. Given the evidence HMRC presented then, surely, if PPR wasn't available then it must have been trading. What else would explain it? And the FTT said the same thing. HMRC might have thought they would be pushing their luck but they only had to establish trading on the balance of probabilities.

I reckon they missed a trick here. And it looks like it's now too late to raise trading assessments for the years in question. Pity!!

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By lisaknowles
27th Jul 2020 14:16

Obviously an easy ruling here in HMRC's favour. Am I the only one wondering what on earth the 'extensive work' was that increased the last property value by nearly £100k but only took 2 weeks of ownership to complete?

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Replying to lisaknowles:
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By raycad
27th Jul 2020 14:34

Replying to Lisa Knowles
It was "listed" (whatever that means, exactly) two weeks after purchase but wasn't actually sold until 9 months later. The SP presumably reflected the work undertaken in that period; but that's yet another sign of trading, is it not?!

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