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February 6, 2015

Trading Asset or Principal Private Residence? - Trevor Anthony Hartland v HMRC

The case of Trevor Anthony Hartland v HMRC examined whether various properties were the taxpayer’s principal private residence (PPR), or whether the sale of the properties amounted to trading assets. It illustrates how the Tribunal are prepared to consider events outside the years of assessment in order to ascertain the nature of the various transactions.


- Mr Hartland was self-employed, running a plant hire business

- He acquired, renovated and sold four properties at a gain, claiming them all to be his PPR. These were:

  • Property A, 1996 - 2000
  • Property B, 2000 - 2002
  • Property C, 2002 - 2004
  • Property D, 2004 - 2005

- The case only concerned the gains made on Property B and C, although it was asserted that the Tribunal must look at the context of previous and successive transactions.

- He acquired, renovated and sold subsequent properties which he included on his tax returns as trading income.

The Case

Mr Hartland asserted that the four properties were successively his homes, and that he bought them with the intention of living in them. He claimed that he did not consider them to be trading assets, therefore neither disposal attracted income tax or capital gains tax (CGT). On this basis, he made no reference to them in his tax returns.

He claimed that he had an interest in property development, and undertook extensive development works in order to create a family home. He spent his own money and time developing the four properties, and only occasionally contracted builders to do complex work when it was beyond his capabilities.

HMRC challenged these claims by providing documents from his bank suggesting that when applying for a loan for Property C, he was anxious to borrow money on a short-term basis, upon the assumption that he would sell the property very quickly after completing the works.

HMRC were also concerned about the difference between the declared profits on his tax returns, and the much greater income figures which he had claimed when making mortgage applications. The income declared on his mortgage application was considerably higher than that shown in the accounts of his plant and hire business, suggesting that Mr Hartland saw the properties as trading assets, and the gains from selling the properties as income. Furthermore, on the mortgage applications he gave his occupation as a builder, rather than a hirer of plant and machinery, suggesting that the income from the properties was trading income.

As noted previously, although it was only gains from Property B and C that were being considered, it was stressed that the Tribunal should look at the bigger picture and consider the nature of the disposals in context, not just those that relate to the years of assessment. In light of this direction, the Tribunal dismissed the ‘badges of trade’ approach, deeming it inappropriate in this case.

The Tribunal held that Property B was acquired with the intention of making it a family home, and it was accepted that the acquisition and disposal of Property A was merely a step up the property ladder. There was evidence to suggest that he used this address for correspondence and paid council tax. Therefore, it was held that this property remained his principal private residence and was entitled to claim for private residence relief throughout this period.

However, it was held that the acquisition, demolition, rebuilding and sale of Property C was undertaken in the course of a property development trade separate and distinct from his plant hire business. The property was sold immediately after the works were complete and there was no evidence that he ever lived in the property. In arriving at its conclusions, the Tribunal took into account the information provided in the mortgage applications and bank documents, as well as the lack of evidence of any correspondence made to him at that address

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