The tax man is taking a tough line on property investors claiming capital gains tax relief on second homes and buy to lets.
The latest tax tribunal case highlights HM Revenue & Customs is setting a high bar for proof that a home was a main residence if the owner is claiming principle private residence relief (PRR).
The First-Tier Tribunal sitting at Cambridge heard Susan Bradley was married and owned a home she shared with her husband. She also owned two buy-to-let properties.
The couple separated and she moved in to one of the buy to let homes which was empty, and then in to the other when the tenancy ended and the flat was empty.
After moving out of the first property, a house, she spent some money on refurbishment and although intending to move back in, she sold the house.
The tribunal heard you considered the separation temporary and intended to move back to the marital home, where she continued to receive post.
She did not open her own bank account, keeping a joint account with her husband, nor change the utility bills at the buy to lets in to her own name.
The tribunal accepted Bradley had separated and was entitled to PRR on her home, but disputed either of the buy to lets was ever her main home.
They considered the case Goodwin v Curtis (1998) TC 478, which stated temporary occupation did not prove a property was a home.
HMRC’s case was upheld and Bradley lost her claim for PRR against capital gains tax on the sale of the property.
Commenting on the case, tax advisers Gabelle said: “This case is one of a series of recent decisions involving PPR which indicate that HMRC are now taking a much tougher line, and are quite prepared to challenge what they perceive as contentious claims.
“It underlines the importance placed on practitioners when discussing potential claims with clients and, particularly, the need to gather all the facts regarding the quality, length, nature and circumstances surrounding the occupation of a property to establish its status as a residence or main residence. This is even more crucial in situations where a property has been used as a residence for only a short period.
“In this case, perhaps if SB had not put the property on the market while she occupied it and had taken steps to show this was now her permanent home by notifying the change of address, the claim might have had more chance of success.”
