This case concerned the denial of principle private residence relief on the basis that the property was not lived in on a continuous basis by the claimant. The First Tier Tribunal denied the claim because there was no evidence of intention to live in the house on a permanent basis and evidence to support the claim was inconsistent.

Background

Mr Oliver sold a property during 2007 and claimed full principal private residence relief from capital gains tax on the sale. HMRC denied this claim.

By way of background, Mr Oliver runs a letting business and is described in his email signature as “Property buyer and landlord in Portsmouth and West London.”

Mr Oliver has a long term partner, Natasha Barton who is a nursery school teacher and they have children together. Apart from the period under dispute, the couple lived at 3 Pumping Station Road, London as Mr Oliver’s principle private residence since 1999.

In Spring 2006, following counselling, the couple separated and Mr Oliver went about finding a home to house him and his children when they came to visit. At the time, Mr Oliver owned between 10 and 20 rental properties but did not investigate the possibility of using one of those houses to live in.

Instead Mr Oliver purchased a property at 45 Fitzjames Avenue with contracts exchanged on 6 October 2006. The agent for the sale had been having difficulty selling the property as the lease on the property only had 41 years left before it expired. Mr Oliver asked the vendor to begin the process of extending the lease before the exchange of contracts as otherwise he would have had to wait two years following completion of the sale before he could make an application to do so. Mr Oliver was involved in the negotiation and eventually a premium of £153,000 was agreed which was much greater than the £80,000 – £90,000 that Mr Scott had advised him that the cost might be.

The purchase was funded with a buy-to-let mortgage from West Bromwich Building Society in the joint names of Mr Oliver and Ms Barton for a period of 7 years. The purchase was completed on 5 January 2007 for £515,000. Mr Oliver owned 99% of the property, with Ms Barton holding 1%.

At some time between late February and early March 2007, Mr Oliver instructed three agents to market 45 Fitzjames Avenue for sale with the added benefit of the extended lease. The photos used to advertise the property showed the flat as unfurnished. It was claimed by Mr Oliver that the furniture was pushed to one side and therefore not captured in the frame of the photograph.

It was noted that Mr Oliver did not carry out any structural or any distinctive refurbishment works in the intermittent period of purchasing the property and marketing it for resale. He did seek an interior designer but did not progress with proposals as he found them to be too expensive. Instead he spent a couple of days repainting and fixing some woodwork.

On 12 March 2007, Mr Oliver accepted an offer from a Mr. Boehm to buy the property and the sale was completed on 12 April 2007.

Having resumed counselling in early February 2007, Mr Oliver and Ms Barton got back together and following a holiday together, all moved back in to 3 Pumping Station Road in mid-April 2007.

Mr Oliver used some of the proceeds of the sale to invest in another rental property.

Mr Oliver submitted his 2007–08 tax returns on 29 January 2009 stating that capital gains tax relief “of £114,675 has been included in respect of private residence relief”.

In May 2007, HMRC had received notification, by way on an undated letter, from Mr Oliver that his main residence was 45 Fitzjames Avenue with effect from 5 January 2007. His residence was changed back to 3 Pumping Station Road on 8 August 2007.

In January 2009, HMRC did not open an investigation into the 2007–08 tax returns. Following receipt of a letter from Mr Oliver’s accountants in 2011, HMRC noted that the short period of ownership of 45 Fitzjames Avenue or the fact that Mr Oliver had retained ownership of 3 Pumping Station were not clear from the tax returns and therefore opened an enquiry into the claim for principle private residence relief. An extract from a further letter sent by Mr Oliver’s accountants on 3 April 2012 reads as follows:

“The Fitzjames flat was purchased as a buy to let flat which required work to refurbish it (see Tates’ property description) to a letable standard and needed its lease to be extended. The plan was to commission the refurbishment of the property once the lease extension negotiations were completed. After which other options would be considered such as being let on a corporate long term tenancy, being let on a room by room basis, or remortgaged.

However, due to Natasha Barton and Andrew Oliver reuniting, the high cost of the lease extension and the long time it took to conclude, the refurbishment never took place and the flat was put for sale.”

Following the issuance by HMRC of a protective assessment to capital gains tax (and also alternatively on profits arising from trading income), Mr Oliver appealed the assessment on 18 May 2012.

The assessment and penalty was reviewed on 19 February 2016 and it was found that a charge under trading income principles was not appropriate and principle private residence relief was not due. The reasons for capital gains tax relief being denied were that the occupation of the house lacked permanence, continuity and the expectation of continuity. Mr Oliver appealed the decision on 19 February 2016.

The following legislation is relevant:

Section 222 Taxation of Chargeable Gains Tax Act 1992 (TCGA) provides:

(1) This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in –

(a) 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….”

Section 223 TCGA provides:

“(1) No part of a gain to which section 222 applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual’s only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period.”

Section 224 (3) TCGA provides that:

“Section 223 shall not apply in relation to a gain if the acquisition of, or of the interest in, the dwelling house or part of a dwelling-house was made wholly or partly for the purposes of realising a gain from the disposal of…”

Decision

The Court found the following to be relevant to its decision in denying the claim for relief.

Mr Oliver did stay at 45 Fitzjames Avenue on occasions but it was at no stage his intention to reside there. While the use of the flat may have been uncertain when first acquired, the letter from the accountants confirms that there was a buy-to-let intention and there was no evidence to support the fact that he acquired it in the nature of a trade. It was held that the occupation was that of a “stop-gap” place to stay for Mr Oliver. There was no permanence or degree of continuity or any expectation of continuity. The Court found that the degree of Mr Oliver’s occupation was consistent with his intention to let the flat in due course and that the higher than expected cost of the lease extension prompted the sale instead.

In addition to the taking of a buy-to-let mortgage, and the short period between purchase and resale, three pieces of evidence were particularly inconsistent;

1. Mr Oliver provided a photograph of his daughter in the flat on 21 January 2007 to support his claim. However the photograph was identical to the one used to market the property for sale including the positions of various objects but now included his daughter. Mr Oliver corrected his mistake saying the picture was taken when he was viewing the property.

2. Mr Oliver provided some utility bills but these would have been issued regardless of whether he occupied the flat. Some correspondence provided as evidence post-dated the acceptance of an offer from Mr Boehm to buy the property. Furthermore no telephone or internet connections were arranged in the property which was unusual if someone were to reside there.

3. Ms Barton’s involvement in the purchase is puzzling particularly if Mr Olive purchased the flat to reside in following their separation.

On the basis of the above, the Court was not convinced that Mr Oliver resided at 45 Fitzjames Avenue as his only or main residence from 5 January 2007 until 12 April 2007 and therefore the appeal was dismissed and principal private residence relief denied.

Full judgement is available at from: http://www.bailii.org/uk/cases/UKFTT/TC/2016/TC05521.html