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August 16, 2018

Open to Interpretation – Relief on Sale of Main Residence

The First Tier Tribunal ("FTT") has found that HMRC’s application Extra Statutory Concession ("ESC") D49 is incorrect, and has suggested that guidance should be revised to reflect the "true position". The decision would provide a more robust application of tax relief to the period before moving into a property that is an individuals main residence, where the relevant conditions are met.


Principal Private Residence Relief ("PPR") provides relief to individuals from capital gains tax ("CGT") where they dispose of a dwelling house which is used as their only or main residence. The rules of the relief also provide for deemed periods of residence.

In addition to these rules, HMRC can apply ESC D49 which provides additional relief from CGT for the period between acquisition of the land/property on which a dwelling house stands, and the beginning of residence on that site, where the following circumstances apply:

  • where the delay in taking up residence is because a dwelling house is being built on that land,
  • where the delay in taking up residence is because of the continuing occupation of the previous residence while arrangements are made to sell it,
  • where the delay in taking up residence is because alterations or redecorations are being carried out.

ESC D49 allows relief for a period of up to 12 months in the above circumstances, although where there is "good reason" for the period exceeding 12 months (outside of the individuals control), the relief may be extended for up to 24 months.


HMRC’s interpretation of the above ESC (evidenced in an example in HMRC’s Capital Gains Tax Manual), provided that if the build or renovation period exceeds 12 months (or 24 months where there is a "good reason" for the delay), no part of the ESC period is available to the taxpayer as relief against CGT.

The FTT made the point that "it is essential that the construction placed upon the text should not lead to a manifestly absurd or unfair result". In the case, they sought to determine the "true purport and intent" of the concession, so as to determine whether it was being construed and applied correctly.

It was the FTTs judgement that the example provided in HMRC’s Capital Gains Tax Manual was wrong and should not be applied or followed.

Instead, the FTT determined that the intention of ESC D49 was to apply relief in the relevant circumstances, subject to a maximum of 12 months or, if applicable, 24 months. This is to say that where, for example, an individual held a parcel of land for 7 years prior to taking up residence, then up to 24 months of the 7 years could receive relief under ESC D49 where the relevant conditions have been met.

It should be noted that decisions of the FTT do not generally create binding legal precedent; however, they can be influential on other decisions of the courts and tribunals.

If you have any questions, or require advice or assistance with the sale of a property, capital gains tax, or the application of PPR, please contact a member of our team for a no obligation chat.

Contact us today to discuss your tax requirements.
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