Tribunal allows private residence relief

In the recent case of Richard James Dutton-Foreshaw v HMRC[1], the First-tier Tribunal (FTT) held that Mr Dutton-Foreshaw (the Appellant) was entitled to claim principal private residence relief (PPR) under section 222 Taxation of Chargeable Gains Act 1992 (TCGA), despite only having lived in the property concerned for seven weeks.

Background

The Appellant and his then wife had a daughter in 1999. They decided to raise their daughter in rural Lymington. However, due to onerous work commitments, the Appellant lived in London during the week.

The Appellant and his wife were divorced in 2002. Following the divorce, the Appellant moved into Upper Pennington House in Lymington.

In June 2006, the Appellant purchased a flat in London (the Property) and in July 2006 he applied for and obtained a parking permit from the Royal Borough of Kensington & Chelsea – a requirement of which is that the applicant’s main permanent home must be in the borough.

The Appellant’s former wife remarried in June 2006 and discussed with the Appellant the possibility of her moving to Spain with their daughter. The Appellant was very much opposed to the idea of his daughter living in Spain with his former wife and her new husband. He was therefore faced with the possibility of either his daughter moving to Spain or moving back to Lymington to look after her. Accordingly, in September 2006, the Appellant moved into Upper Pennington House full-time and rented out the Property until its sale in November 2009.

On 1 April 2014, HMRC sent the Appellant a discovery assessment^[2]  for the year ended 5 April 2010, assessing capital gains tax of £38,970.36 in respect of the disposal by the Appellant of the Property.

The Appellant appealed the assessment to the FTT on the basis that the gain was not chargeable as it qualified for PPR and lettings relief under sections 222 and 223 TCGA^[3].

The FTT's decision

The issue before the FTT was whether the Property had been the Appellant's private residence. The FTT accepted that the Appellant had lived at the Property from 5 August to 26 September 2006, when he had moved back to Lymington to look after his daughter. The FTT had to determine whether the "nature, quality, length and circumstances" of occupation made that occupation "residence" for the purposes of section 222 TCGA (Goodwin v Curtis^[4]). The FTT commented that the need for permanence or continuity should not be overstated (John and Sylvia Regan^[5]). In this case, there was clear evidence that the Appellant had intended to be based on a long term basis in London.

The FTT found that when the Appellant moved into the Property, he hoped to live there on a continuous basis but was aware that circumstances might arise that would require him to live full-time in Lymington. He was therefore in a similar position to the taxpayer in David Morgan v HMRC^[6], a case where, whilst there was some expectation of continuity, there was a definite possibility that the occupation could be cut short.

Based on the evidence before it and in considering the "nature, quality, length and circumstances" of the Appellant's occupation of the Property, the FTT concluded that the Appellant’s occupation was sufficient to qualify as a residence for the purposes of PPR and accordingly no tax arose on the Appellant's disposal of the Property. The appeal was therefore allowed.

Comment

As in many cases relating to PPR claims, this case involved a change in the taxpayer’s personal life which lead to a change of plan and the taxpayer living at different properties. Although the decision is very much based on the specific circumstances surrounding the Appellant's occupation of the Property, it does provide helpful guidance to taxpayers who wish to make similar claims in circumstances where they have occupied the relevant property for a short period of time.

1 [2015] UKFTT 478 (TC)

2 Made pursuant to section 29 Taxed Management Act 1970

3 It was common ground that if PPR applied, lettings relief would also apply so that the gain would be fully relieved and that if PPR did not apply, lettings relief would also not be available

4 [1998] STC 475

5 [2012] UKFTT 569

[2013] TC 02596