PPR – Degree of Permanence Paramount in Determining CGT Liability

When determining whether or not a claim for principal private residence (PPR) relief for Capital Gains Tax (CGT) purposes can be made when a property is sold, the exact nature of the arrangements can be paramount, as a recent case proves.



The case arose when HM Revenue and Customs (HMRC) challenged a man who sold a property in 2007 over his claim that the CGT assessed on the profit he made on the property should be reduced by virtue of a period during which he occupied it as his residence.



The taxpayer claimed that the PPR exemption applied as the property had been his residence for eight months ending shortly before it was sold. The PPR exemption applies to ‘a dwelling house or part of a dwelling house which is, or has at any time in his period of ownership been, [the taxpayer’s] only or main residence’.



The property had originally been bought in 2002 for one of the man’s children and was initially tenanted. The tenant vacated the property in 2006. At that time, the man’s marriage was in difficulties and he therefore moved into it, leaving his then wife living in the former marital home. They were later divorced.



He subsequently began a relationship with another woman (who became his second wife). She had two young children. He arranged for some of his post to be sent to her address and began looking for another property quite soon after moving in with her. He put his own property on the market shortly afterwards. A few months later, contracts were exchanged for its sale and he and his new partner bought a house together.



The simple issue before the First-tier Tribunal was whether the man’s period of occupancy of the property he sold was sufficient for it to have been his ‘residence’ – which means, in effect, his home. The term implies a ‘degree of permanence, continuity or expectation of continuity’.



As well as commenting on the arrangements regarding the post, the Tribunal also noted that, whilst the property would have been a suitable residence for him as a single man, given his developing relationship with the woman, the property would not have been a suitable home for a family of four. The Tribunal also noted that, other than paying Council Tax during his period of occupation, he had made no attempt to transfer his other billing arrangements to that address, which was also indicative of an intention only to reside there temporarily.



The Tribunal concluded that the exemption did not therefore apply and upheld HMRC’s CGT assessment for more than £14,000.



HMRC are looking with increasing care at property transactions which might be subject to CGT and, in particular, have announced that special attention will be paid to sales of let properties in order to ensure that tax on gains is accounted for and collected.