Quality of occupation is paramount when deciding whether a property is a taxpayer's 'only or main residence' for the purposes of capital gains tax
A recent decision of the First-tier Tribunal (Tax Chamber) ('FTT') provides helpful insight into the way in which the FTT will apply the Capital Gains Tax Private Residence relief provisions contained in sections 222 and 223 of the Taxation of Chargeable Gains Act 1992 ('TCGA').
In Piers Moore v HMRC  UK FTT 433 (TC), the issue to be determined was whether the Mr Moore's actual occupation of a residential property had the necessary degree of "permanence, continuity or expectation of continuity" to satisfy the relevant statutory criteria. After careful consideration of the evidence, the FTT (John Walters QC) held that the relief was not available and accordingly the sum of £14,448.80, representing the chargeable gain arising on disposal of the property, was correctly payable by Mr Moore.
Mr Moore purchased a property in Huntingdon some time prior to the events in question on 5 November 2002 ('the Property'). The Property was let from November 2002 until November 2006. In November 2006, Mr Moore needed somewhere to live following a breakdown in relations with his first wife and on 12 or 13 November 2006 (following departure of the final tenant), he moved out of the matrimonial home ('the Matrimonial Home') and into the Property. The judge accepted Mr Moore's evidence that he had lived at the Property on his own. He had taken some furniture with him from the Matrimonial Home and bought some additional furniture. He took all his clothes with him to the Property. Mr Moore had a new partner and the evidence was that this relationship developed following the events described.
Mr Moore's evidence was that in about March or April 2007, he and his partner decided that they would live together. His evidence however (which the judge accepted) was that during the period that he lived at the Property (between November 2006 and 22 July 2007) he spent "pretty much" every night at the Property except for occasional nights when he was away from home travelling on business. Evidence provided from the estate agents who marketed the Property was that it was put on the market for sale on 22 April 2007. Mr Moore made an offer to purchase another property in Great Stukeley on 3 May 2007 and that purchase was completed on 27 July 2007 and the evidence was that he moved into the Great Stukeley property on that date. Contracts were exchanged for the sale of the Property on 21 August 2007 and completion took place shortly thereafter.
Mr Moore submitted in evidence in support of his occupation of the Property, a Council Tax bill from Huntingdonshire District Council showing that he was charged Council Tax on the Property for the period from 13 November 2006 to 22 July 2007 with the discount appropriate to single occupancy and for the period from 23 July 2007 to 22 August 2007 with the discount attributable to an unoccupied and unfurnished residential property. He also provided a letter from Huntingdonshire District Council confirming that the council's records showed that he resided at the Property from 13 November 2006 to 23 July 2007. The judge found as a fact that he had lived at the Property during this period.
HMRC's case was that Mr Moore's occupation did not have the necessary degree of permanence, continuity or expectation of continuity necessary for the Property to qualify as his only or main residence, for the purposes of sections 222 and 223 of the TCGA.
Section 222 of the TCGA provides as follows:
"Relief on disposal of private residence
"(1) This section applies to a gain accruing to an individual so far as attributable to the disposal of, or 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, or ….".
HMRC relied on the decision in Goodwin v Curtis 70 TC 478 for the proposition that occupation of a dwelling house which lacks the necessary degree of permanence, continuity or expectation of continuity, does not amount to "residence" for the purposes of sections 222 and 223 TCGA. The judge noted that the Court of Appeal, in approving the General Commissioner's finding in the Goodwin case, observed that it was based on the objective evidence that the taxpayer had separated from his wife and moved into a farmhouse only after it had been put up for sale and that the taxpayer's occupation in that case was manifestly a stop gap measure pending the completion of his purchase of somewhere else to live. In that case the Court of Appeal had distinguished temporary occupation of a residential property from "residence" in the property for relevant purposes. Millett LJ had referred to Viscount Cave LJ's explanation in Levene v Commissioners of Inland Revenue 13 TC 486, in an income tax context, of the meaning of the word "reside", as "to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place".
The FTT noted that an important difference between the facts of Goodwin v Curtis and the facts in the instant appeal was that although both cases concerned taxpayers whose marriages had come to an end, in the instant case the taxpayer had formed a new relationship and moved from the property in question to a new house with his new partner.
The question was whether there was a sufficient degree of permanence or expectation of continuity about Mr Moore's residence at the Property in the period between November 2006 and 22 April 2007 (when on the understanding that that was the date the Property had been offered for sale there was clearly in his view no degree of permanence or expectation of continuity thereafter). The FTT concluded that the most important factor which determined Mr Moore's expectation at any time of what the continuity or permanence of his occupation of the Property would be, was the state of his relationship with his new partner who subsequently became his second wife.
Mr Moore had not been able to provide corroborative evidence from his former wife concerning the events relating to his departure from the Matrimonial Home and subsequent events and the judge therefore indicated that the evidential weight of Mr Moore's own evidence was "not as telling as it would have been if it had had such corroboration".
The judge indicated that although Mr Moore "may have been prepared to stay at the Property for a considerable period of time" he had "difficulty in accepting that he had no serious hope or expectation that he would be able to buy a house to live in with his girlfriend … before March 2007." The judge therefore concluded that Mr Moore had failed to discharge the burden of proof which was on him to satisfy the FTT that for any significant period after 12 or 13 November 2006 he did not have an expectation of being able to move from the Property and set up home with his new partner.
This decision confirms that it is necessary to consider the quality of occupation and the taxpayer's expectations and intentions, viewed objectively in the light of the relevant surrounding circumstances, in order to consider whether the degree of permanence has been established. In this case what on the face of it appeared to be a period of occupation of sufficient permanence to meet the statutory criteria was undermined by the failure to adequately evidence an expectation of continuity. This decision demonstrates the importance of corroborative evidence in cases of this nature.