An individual might occupy a dwelling for only a short period of time before selling it. They will normally hope to be entitled to principal private residence (PPR) relief for capital gains tax purposes in respect of a gain on disposal. However, a common question in such circumstances is: ‘how long does an individual need to occupy the house as a residence to be eligible for PPR relief?’.
Unfortunately, there is no straightforward answer to this question. HM Revenue and Customs (HMRC) states in its Capital Gains manual (at CG64427): ‘There is no minimum period of occupation that would enable an individual to establish a residence.’
Occupation is one thing; but a key issue is whether the dwelling was occupied as the individual’s ‘residence’. This is a question of fact, which can sometimes lead to disputes with HMRC.
The best of intentions
For example, in Davidson v Revenue and Customs  UKFTT 300 (TC), the appellant purchased a flat in London on 10 June 2008 for around £555,000. Substantial refurbishment work was subsequently undertaken on the flat, costing over £60,000. In the ten-week period from 7 March 2011 to 24 May 2011, he and his male partner resided at the property. From 24 May 2011 until 29 December 2012, the flat was let. From 29 December 2012 to 18 February 2013, it was empty. The appellant sold the flat on 18 February 2013 for £750,000. HMRC refused to allow the appellant PPR relief.
The appellant’s evidence was that he intended living in the flat long-term, but that soon after moving into the property incidents of domestic violence took place between him and his partner, which subsequently resulted in each of them vacating the property. The First-tier Tribunal found that although the appellant and his partner resided at the flat for only ten weeks, they moved into the property with the intention of it being their home on a long-term basis. In the tribunal’s judgment, although this did not come about, it did not in retrospect detract from the fact that when he and his partner moved into the flat, it was their intention to make it their long-term home. The tribunal concluded that the property was the appellant’s PPR for the ten-week period of residence.
Quality is important
It is generally accepted that to qualify as an individual’s ‘residence’ there must be “some assumption of permanence, some degree of continuity, some expectation of continuity” (Goodwin v Curtis  STC 475).
HMRC’s guidance (at CG64435) cites case law to support the proposition that ‘the test of residence is one of quality rather than quantity’. For example, the tribunal in Bailey v Revenue and Customs  UKFTT 658 (TC) applied a ‘quality’ over ‘quantity’ approach in deciding that a property was the appellant’s ‘residence’ albeit it was only occupied for approximately eight months out of the individual’s 28-month period of ownership.
A short period of ‘residence’ is not necessarily fatal to a PPR claim if there is sufficient evidence to demonstrate that this requirement was met.
The above article was first published in Property Tax Insider (December 2019) (www.taxinsider.co.uk).