Interaction of Private Residence Relief and Business Taper Relief

This case concerned the interaction of the UK Capital Gains Tax Private Resident Relief (PRR) under s222 and Taper Relief legislation under s2A of Taxation of Chargeable Gains Act 1992. The taxpayers (Mr and Mrs Jefferies) brought an appeal to the First Tier Tribunal against amended tax assessments and closure notices issued by HMRC.

The taxpayers in this case made a capital gain of £576,945 from disposal of a hotel which was jointly owned. The hotel was used partly as a private residence and partly for the taxpayer's hotel trade. The agreed split was 65% for private residence and 35% for the hotel business. PRR was fully available in respect of the gains relating to the element of the hotel allocated to private residence leaving a chargeable gain of £201,931.

The issue was how the remaining £201,931 should be taxed and in particular how the taper relief rules at s2A and Sch A1 should be applied to those gains.

HMRC submitted that the gains after PRR should be further apportioned between business and non-business use for taper relief purposes. The taxpayers argued that the remaining gain should not be apportioned since an apportionment was already made for the purpose of PRR.

The main question for the Tribunal to consider was the application of taper relief legislation in circumstances when relief from capital gains tax was already partially given in respect of a particular asset. Both parties accepted that PRR should be applied before the taper relief in this case.

The court disagreed with HMRC's submission and held that the whole of each taxpayer's chargeable gain in respect of the asset remaining after the application of PRR should be treated as eligible for business asset taper relief.

The full text of this case is available at http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j4597/TC00235.doc