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August 29, 2013

Capital Gains Tax - Sale of Home but is it a Residence?

Where a person sells their home the gain is typically exempt from capital gains tax under the private residence relief (PRR) provisions (formerly known as principal private residence relief or PPR).

Private residence relief is available on the sale of the taxpayers only or main residence,with the amount of relief being determined based on the length of ownership as compared to the length of occupation although certain periods of deemed occupation may also qualify for relief.

However, the recent case of Moore v HMRC TC 02827 acts as a reminder that occupation by itself is not sufficient to make a house a home - or more specifically a 'residence' for capital gains tax purposes.

Case law demonstrates that in order for a house to be a residence for these purposes there must be a degree of permanence, continuity or an expectation of continuity.

For example, in the case of Goodwin v Curtis the Court of Appeal found that there is a distinction between temporary occupation and residence of a property.  In that case the taxpayer moved into the property after placing the property on the market for sale therefore the court held that the occupation was of a temporary nature and principal private residence relief did not apply.

In the Moore case, the taxpayer moved into a property that had previously been let out following a separation from his wife.  Several months later he purchased a property with his new partner and sold the property he had been living in since the separation from his wife.

The Moore case can be distinguished from Goodwin v Curtis because the taxpayer moved into the house before it was marketed for sale and lived in it for 7-8 months (compared to living in the property for 1 month after being placed on the market as in the Goodwin case), so it is perhaps somewhat surprising that the first tier tribunal found the taxpayer's occupation of the property lacked the degree of continuity required to make it his residence.

In making their decision the tribunal made particular reference to the lack of evidence, other than council tax bills, regarding the taxpayer's occupation .  Other correspondence went to both his former home and the home of his new partner.  Whilst the tribunal accepted that he had lived in the property, they felt that the lack of evidence suggested that did not intend to live in the property permanently.

An unexpected capital gains tax bill following the sale of a home is never a desirable outcome therefore client's selling their home should obtain tax advice to confirm whether they meet the conditions for private residence relief and if so the amount of relief available.

Care should also be taken to properly document changes in a client's main residence.


Contact us today to discuss your tax requirements.
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