Tax Consultant Carter Backer Winter
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Taxpayers’ two acre property escapes tax

A couple who sold their large house with over two acres of grounds persuaded the tax tribunal that the entire plot was in keeping with the property, and CGT relief should apply.

8th Jan 2021
Tax Consultant Carter Backer Winter
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Property
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Mr and Mrs Philips appealed against discovery assessments (TC07859) seeking to charge £162,820 CGT on the disposal of their main residence, which was raised because of the size of the garden or grounds for the property exceeded 0.5 of a hectare. 

The property sold

In 1997 when the property was purchased, the main house included three reception rooms, five bedrooms, and a garage for three cars. The property also included a one-bedroom cottage, a swimming pool and substantial gardens. After some renovation a bedroom had been converted into a bathroom resulting in the property having four bedrooms and four bathrooms. The entire property covered 0.94 hectares (about 2.3 acres).

The taxpayers reluctantly decided to sell their property in 2014 after there were changes to the local planning rules which enabled the development of the land surrounding their property, meaning they would be surrounded by new houses.

The discovery assessment

The taxpayers did not report the disposal of the property to HMRC on the basis that the entire gain was covered by principle private residence relief (PRR) for CGT.

Following a review of the stamp duty records in March 2017, HMRC concluded their investigation by issuing discovery assessments in October 2017, representing a gain on 0.44 hectares not covered by the PRR exemption. The taxpayers appealed against the discovery assessments on the basis the entire garden or grounds were required for the reasonable enjoyment of the house.

Principle Private Residence Relief

The CGT relief is available to individuals who are disposing a property which either is or has been their only or main residence. The relief can also extend to cover buildings, gardens, or grounds, which the individuals occupy and enjoy as part of their main residence (the “permitted area”).

The legislation dictates that the permitted area can automatically include an area including the site of the property of up to 0.5 hectares. If the area extends beyond that size, the relief can still be utilised if it can be demonstrated that it is in keeping with the size and character of the property, and that the area required is for the reasonable enjoyment of the property.

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