TT189: Home is where the heart is

In TT 187, we brought to your attention a “crackdown” announced by HMRC into people who dispose of second homes, the idea being to charge CGT on gains made.

Whilst the position of people who make gains on second homes may not elicit any great sympathy, spare a thought for Mr Piers Moore, who recently did battle with HMRC in the First-tier Tribunal. This case illustrates that it is not only second homes, or holiday homes, that HMRC may attempt to attack.

The facts of Mr Moore’s case are that he and his wife had separated. Mr Moore had moved out of the matrimonial home and moved into a small investment property which he had owned for some time and which had become vacant. This property was his one and only home until he sold it some nine months later, in respect of which disposal he claimed the statutory amount of CGT main residence relief (in which regard the entire final 36 months of ownership of a property that has, at any time, been your main residence is exempt from CGT). It seemed irrefutable that the property had become his main residence, especially as it was his only home in that period, so how could HMRC attack the situation?

The problem was that HMRC argued that, to be a “residence” at all, the property had to be occupied with a degree of permanence. And the Tribunal found as a fact that Mr Moore had found a new lady-friend whom he intended to marry and with whom he intended to live in a new matrimonial home to be purchase jointly by Mr Moore and the new Mrs Moore. As Mr Moore could not prove that during his time in the property he “did not have any serious expectation of being able to move” the Tribunal held that he had not occupied the property on a suitably permanent basis for it to qualify as a “residence” for CGT purposes. Hence, no CGT main residence relief was granted.

The decision seems to be quite wrong. How can a person’s only home for a period of some 9 months not be a “residence”, simply because of an expectation of moving to a better home? The decision, being one of the First-tier Tribunal does not set a binding legal precedent, but we expect HMRC to cite it with enthusiasm in any case where a person’s occupation of a property is reasonably short-term. As such, anyone occupying a property on a short-term basis should take all reasonable steps to be able to demonstrate that the “quality” of the occupation as a residence existed even though the “quantity” (i.e. the amount of actual time at the residence) might be lacking.

As ever, anyone who requires advice about this topic, or related issues concerning the availability of CGT main residence relief, should contact their Barnes Roffe liaison partner for a meeting or a discussion.

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