Private residence relief (PRR) provides relief from capital gains tax (CGT) on the disposal of a property that has been used as your main home during the period of ownership.
In the recent First Tier Tribunal (FTT) case of Hashmi v HMRC, the tribunal found that Mrs Hashmi (the taxpayer) had failed to satisfy the burden of proof required to show that the properties that she lived in were her private residences, and therefore eligible for private residence relief. The case provides insight into the level of proof that is required to support a claim for private residence relief for a property.
Background
Between 2013 and 2015, the taxpayer lived in the following properties, for the following periods:
- 132 Shaggy Calf Lane until March or April 2013
- 8 Crown Leys from March or April 2013 until 28 September 2013
- 132 Shaggy Calf Lane from 28 September 2013 until November 2013
- 40 Mirador Crescent from November 2013 until 3 June 2014
- 132 Shaggy Calf Lane from 3 June 2014 until September 2014
- 42 Farm Crescent from September 2014 until 10 July 2015
- 132 Shaggy Calf Lane from 10 July 2015 onwards.
HMRC issued a CGT assessment in relation to 3 of the properties. 8 Crown Leys (disposed of in 2013/14); 40 Mirador Crescent (disposed of in 2014/15), and 42 Farm Crescent (disposed of in 2015/16). None of the disposals were reported on the taxpayer's self-assessment tax returns on the basis that;as she lived in the properties, any gains would be eligible for PRR.
The Case
Each property was considered in turn as a part of the case.
The Taxpayer's Arguments
In relation to 8 Crown Leys, the taxpayer stated that the property was purchased as an affordable family home, but was ultimately sold as the taxpayer was pregnant and decided to move back to Slough to be closer to family. The taxpayer provided copies of delivery notes to the property (including nappies/baby wipes) as evidence that the property was used as the main home during the period.
In relation to 40 Mirador Crescent, the taxpayer stated that the property was acquired as it was close to her husbands work, so he could support her in the later stages of pregnancy. However, due to an indecent where the taxpayer's husband saw people attempt to break into the property, it was decided that it was not ideal for raising a family.
Lastly in relation to 42 Farm Crescent, the taxpayer and her husband as witness, alleged that there were issues with neighbours (loud music, harassment) that meant that the property was ultimately not suitable as a home. The taxpayer provided a copy of a letter confirming gas had been supplied to the property, and an application to vote by post addressed to 42 Farm Crescent, as evidence of living there.
HMRC's Arguments
HMRC noted that the taxpayer remained on the electoral register at 132 Shaggy Calf Lane between 2012 and 2015, during the periods when it was alleged that she lived at other properties. During the period at 40 Mirador Crescent, HMRC confirmed that the taxpayer had also applied for finance indicating her address as 132 Shaggy Calf Lane.
No bank statements or insurance documents were provided to HMRC in support of the claims that the taxpayer lived in each property as her main home, and HMRC argued that there was insufficient evidence that any of the 3 properties were used as the taxpayers principal residence.
Decision
The court noted the relatively short periods that the taxpayer lived in each property (6-9 months in each case). In each case, 132 Shaggy Calf Lane was the property she returned to, and where she still resides. They also noted that this address was as her address for financial matters and the electoral role until 2015.
The taxpayer had the option to provide financial records and witness statements from neighbours as evidence of living at the properties in support of her claims for PRR, but did failed to do so. In 2 cases, the properties were listed for sales within weeks/months of acquiring the property, which the tribunal noted was an indication that the taxpayer was trading in property, rather than living in them.
It was noted that the reasoning provided for disposing of the proprieties lacked detail and evidence, and overall the taxpayer failed to produce sufficient evidence to convince the tribunal that she intended to live in each property them with some degree of permanence.
Accordingly, the taxpayer's appeal was dismissed.
If you require assistance with calculating capital gains tax and availability of private residence relief on your property, or if you have any other UK tax queries, please feel free to
contact a member of
the team.
Related Articles
https://www.stratostax.co.uk/insights/its-what-you-know-private-residence-relief-evidence-of-intention/
https://www.stratostax.co.uk/insights/evidence-necessary-to-support-private-residence-relief-alison-clarke-v-hmrc/
https://pd-taxconsultants.co.uk/ritchie-v-hmrc-principle-private-residence-relief-pitfalls/
