HMRC is challenging more and more claims for private residence relief, particularly where there are multiple properties and it isn't obvious that there has been any actual occupation of the property sold. How can two recent tribunal cases help when making a claim?



In the simplest cases the question of whether private residence relief (PRR) is available poses no issues. Take an individual who has lived in a small property that was their only home for the full period of ownership. In such instances, the individual would be entitled to a full exemption from capital gains tax under PRR when they sell their home.

Unfortunately, the PRR rules can quickly become complex, particularly for those who own multiple residences or residences with substantial grounds, who have let out a former home, or who have been absent from their home for some time.

A good knowledge of the PRR legislation, as well as keeping up to date on tribunal cases involving claims, is essential to be able to claim the correct amount relief.


PRR legislation

PRR is enabled by s.222 Taxation of Chargeable Gains Act 1992 (TCGA) . This applies to a gain accruing if it relates to a disposal of (or an interest in):

  • “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; or
  • land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.”

 “Permitted area” generally means an area (inclusive of the site of the dwelling house) of 0.5 hectares. However, the permitted area can be larger where the area required for the reasonable enjoyment of the dwelling house as a residence (having regard to the size and character of the dwelling house) is larger than 0.5 hectares. The recent Phillips v HMRC [2020] TC07859 case illustrates this.

Where a loss on disposal arises, that loss is not an allowable loss to the extent that it would have qualified for PRR had it been a gain. However, it is possible for a disposal to produce a partial allowable loss, e.g. where only partial relief under PRR is available. Other useful examples are provided in HMRC’s guidance at CG 65080.


Absences etc.

Where a taxpayer has not lived in their residence throughout their period of ownership, has let out part or all of their property, or has used part of their home exclusively for business purposes, full relief may not be available. In such cases, ancillary reliefs may be available and should be considered, the “final period” exemption being the most well known.

For disposals made on or after 6 April 2020, the final period exemption has been reduced for most taxpayers to nine months (previously it was 18 months). Lettings relief has also been restricted, and from 6 April 2020 can only be claimed in cases where the taxpayer lived in the home at the same time as their tenants.

Changes have also been introduced as to how and when property disposals should be reported, and any tax paid, to HMRC.


Identify the main residence

Crucially, an individual may only have one main residence at a time for PRR purposes. Spouses or civil partners that aren’t separated must have the same main residence.

Where an individual has more than one home, they may nominate a specific residence to be their main residence. The nomination must be made within two years of the date the taxpayer first has a particular combination of residences, with a new two-year period starting if there is a change in the combination of residences.

If a taxpayer has more than one home and has not made a nomination, the question of which home is the main residence is to be determined based on the facts. PRR appeals that go to tribunal often involve taxpayers who have not made a main residence nomination, as was the case in Simpson v HMRC [2020] TC07476.


Simpson case - occupation

The taxpayer (S) sold a one bedroom flat (Earl’s Court Square), which she owned for approximately six months. S argued that the resulting gain was exempt from CGT as the property had been her only or main residence throughout her period of ownership. HMRC argued that either S never occupied Earl’s Court Square as a residence or, if she had, it was not her main residence. S had another property a short walk away which she claimed was her main residence immediately before and after her occupation of Earl’s Court Square. HMRC contended that Coleherne Court remained her main residence throughout her ownership of Earl’s Court Square, and so PRR was unavailable.

The First-tier Tribunal (FTT) agreed with HMRC. The FTT noted that there was a complete absence of evidence that S occupied Earl’s Court Square at all, and that even if she had, her occupation did not have the necessary degree of permanence, continuity or expectation of continuity for it to be regarded as her residence. The appeal was dismissed.

Remember it is quality, not quantity of occupation that is crucial. It is still possible for a short period of occupation to secure a PRR claim. In particular, refer to the case of Core v HMRC [2020] TC 07917 where the FTT allowed a claim for PRR where the occupation period was only eight weeks.


Hashimi case - trading intention

Another misconception people may have is that any residential property disposal is automatically treated as a capital disposal. While this will be the case for the majority of cases, it’s important to note that it is possible for a property sale to be treated as a trading transaction, and so subject to income tax. An example might be where an individual has intentionally purchased a property to sell it quickly at a profit, as was the case in A. Hashimi v HMRC [2020] TC07715.

The taxpayer (H) disposed of three residential properties in three consecutive tax years. She claimed that she had lived in all three properties as her principal private residence. All three properties under appeal were listed for sale within months (and in one case weeks) of purchase, and improvements had been made to all of them.

The FTT commented that it was “clear” H was trading in property, with the short periods between the acquisition and disposal of each one at a gain after undertaking improvements being an indication of trading. None of the three properties qualified for PRR, and the appeal was dismissed. HMRC appeared to miss the trading nuance in H’s case and had issued assessments to capital gains tax on the property disposals. If HMRC had assessed her on the basis she was trading, she would have been subject to income tax on the property disposals.


Key takeaways

These cases illustrate factors that can help or hinder a PRR claim that  should be considered when making a claim:

  • How is the property furnished? In the Simpson case, sparse furnishing of the property using excess furniture from other properties was not consistent with an intention to occupy the property permanently.
  • Where is the individual receiving day-to-day correspondence? Where are they registered to vote? Council tax documentation only demonstrates ownership, not occupation.
  • Are there photographs or other evidence that show both occupation and suitability for occupation during the relevant period?

Keep these points in mind when dealing with complex PRR claims and retain evidence in case of HMRC challenges.