Most individuals will live in several different dwellings during their lifetimes. It is probably for this reason that principal private residence (PPR) relief for capital gains tax (CGT) purposes (in TCGA 1992, s 222, 223) is generally so familiar – nearly everyone will probably claim the relief at some point.
However, there are certain conditions and restrictions to the relief, including the fundamental requirement that the dwelling house has been the individual’s residence. Unfortunately, there is no statutory definition of ‘residence’ for these purposes. This has resulted in a number of cases concerning PPR relief over the years.
Is it a ‘residence’?
The case Dutton-Forshaw v Revenue & Customs  UKFTT 0478 (TC) is an interesting recent example. In that case, HM Revenue and Customs (HMRC) assessed CGT on the disposal of a flat (32 Cornwall Gardens, London). The taxpayer appealed, contending that the gain qualified for PPR relief and lettings relief. The facts were relatively detailed, mainly due to the taxpayer’s personal circumstances (which included a marriage breakdown) and his occupation of a number of properties between 1994 and 2012. He worked long hours in London, and originally bought a property in Lymington to spend time away from his work. The taxpayer occupied different properties at various times over the above period (and also rented part of his friend’s house between approximately March and June 2006).
The taxpayer bought a property (Upper Pennington House, Lymington) in March 2006, although he did not spend a night there until 27 September 2006. In June 2006, he bought 32 Cornwall Gardens. He claimed to have occupied the flat as his residence between 5 August 2006 and 26 September 2006. Subsequently, after moving to Upper Pennington House in September 2006, the taxpayer lived in Lymington full-time. Cornwall Gardens was rented out, and eventually sold in November 2009.
Factors to consider
The First-tier Tribunal considered whether (following the case Goodwin v Curtis  STC 475) the ‘nature, quality, length and circumstances’ of the taxpayer’s occupation of the flat made that occupation qualify as a ‘residence’. The tribunal accepted (following Fox v Stirk and Bristol Electoral Registration Officer  3 All ER 7) that there must be “some assumption of permanence, some degree of continuity, some expectation of continuity” to turn mere occupation into residence. However, the tribunal agreed with the tribunal in Regan v HMRC  UKFTT 569 (TC) that “the need for permanence or continuity should not be overstated”.
The tribunal found that, when the taxpayer moved into Cornwall Gardens, he hoped to live there on a continuous basis, but was aware that his personal circumstances might require him to move and live full-time in Lymington. In that sense, he was in a similar position to the taxpayer in another case (Morgan v HMRC  UKFTT 181 (TC)), in that whilst there was “some” expectation of continuity, there was a definite possibility that the occupation of the property would be cut short. The tribunal concluded that private residence relief and lettings relief were both available in respect of the gain on the sale of 32 Cornwall Gardens. The taxpayer’s appeal was allowed.
An apparently popular question asked by some house owners is how long they need to live in a dwelling before they can claim private residence relief on its disposal. However, as demonstrated by Dutton-Forshaw (where Cornwall Gardens was the appellant’s only residence for the 52 day period from 5 August 2006 to 26 September 2006) and other cases, there is no ‘safe’ period of occupation. The “nature, quality, length and circumstances” of occupation all need to be considered in determining whether the property was the individual’s ‘residence’, based on the particular facts of each case. Evidence of an intention to occupy the property as a residence is also important.
The above article was first published by Property Tax Insider (January 2016) (www.taxinsider.co.uk).