For many of us the most valuable asset that we will ever own is our home, and the particular importance of property ownership is recognised in several ways by the tax system. Probably the most valuable tax relief for home owners provides that a gain on a property that is the owner’s only or main residence is exempt from capital gains tax (CGT). This relief is commonly known as PPR.
Most people tend to take the existence of this relief for granted when, of course, the gains on almost every other type of asset are subject to CGT. But this relief can easily be lost if you don’t meet the requirement that the property is your “only and main residence”.
The last few years have seen a string of cases decided by the Finance and Tax Tribunal where PPR has not been given and so CGT has been payable.
Only and main residence
The relief applies to “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.”
The courts have interpreted the words “only or main residence” as meaning that:
- the owner has to actually occupy the property; and
- the occupation must have “some assumption of permanence, some degree of continuity [and] some expectation of continuity”.
Recent cases where CGT has been payable
A number of taxpayers have fallen foul of these requirements in recent years:
In 2011, Alexandra Bradley failed in her claim for the relief in respect of a flat in Manchester. The property had been given to her by her father in 1998 and subsequently sold by her in 2003.
Ms Bradley had not spent much time at the flat as she had been a student at Leeds University in the period between 1998 and 2002. The tribunal concluded that, in fact, she had never lived at the flat and was not therefore entitled to claim PPR. An intention to live there with no actual occupation was insufficient.
The quality of a taxpayer’s occupation of a property has been considered on a number of occasions in the last few years and, whilst each case is decided on its facts, it is interesting to note a few of the factors that the tribunal have considered to be indicative of the right degree of permanence.
In the most recent case, Wade Llewellyn was considered not to have moved permanently into 10 Henderson Road following a separation from his wife. Key factors in this decision were that he did not change his address for any purpose and he continued to be registered to vote at the matrimonial home.
Following a similar marital split, Mrs Susan Bradley was unsuccessful in her attempts to claim PPR on the house into which she moved as her occupation was considered to be temporary. The tribunal noted that she could not have decided to live there permanently as the property was on the market for sale when she moved in and continued to be so throughout her stay there.
Last year, Mr and Mrs Harte failed in their attempt to claim PPR because of the temporary nature of their occupation. This was evidenced, according to the tribunal, by the fact that the utility bills to the property were never transferred into their names, they had never entertained family and friends in the property and they used furniture left behind by the previous occupier instead of moving in their own furniture.
Lessons for the taxpayer
So the lessons to be drawn are clear if you wish to qualify for this valuable tax relief:
- Move in, don’t just intend to do so.
- Make sure your occupation is not seen as being temporary. In particular, change your address for all purposes, register to vote at the property, transfer the utility bills to your name, and make sure that you have your friends around from time to time!