6 minute read.
The taxpayer was not entitled to private residence relief on the disposal of a property because she did not occupy it with the intention that it would be her permanent home.
Background
The appellant owned a house in London from 14 July 2006 to 12 July 2007, although she did not gain entry to the house until 28 August 2006 (because the property was initially occupied by a tenant), and she decided to sell it by 28 March 2007 following a failed planning permission application.
The purchase price of the house (£190,000) was financed by borrowings from her mother in the first instance, and with bank borrowings of £125,000 as a one-year loan.
The appellant was a student. In mid-September 2006, she accepted the offer of a room in a student hall of residence in Southampton. Thereafter, the appellant began using her halls of residence address as her postal address. She stayed at the house in London (which was initially in poor condition and required clearing out and repair work) for part of the period from 28 August to 5 October 2006, on most weekends during her autumn and spring terms, and for part of her Christmas and Easter holidays.
Registering
The appellant applied to go on the electoral roll in respect of her student address in Southampton. She was not on the electoral roll in respect of the London house. Some utility bills were incurred during the appellant’s period of ownership of the London house.
The appellant did not register with HM Revenue and Customs (HMRC) for self-assessment in respect of the property disposal. HMRC made a discovery assessment for the tax year 2007/08 (under TMA 1970, s 29) on the basis that the appellant was not entitled to private residence relief on disposal of the house. In addition, a penalty was imposed (under TMA 1970, s 7(8)) for failure to notify liability. The appellant appealed.
Decision
The First-tier Tribunal (FTT) considered that the burden was upon the appellant to demonstrate her entitlement to private residence relief on the disposal of the London house. The FTT also held that the property was not the appellant’s residence before 28 August 2006 or after 28 March 2007.
The FTT focused on the quality of the appellant’s periods of occupation, rather than the length of time of occupation, and on her intentions for the property. It considered whether there was an expectation of continuity or permanence in the appellant’s occupation of the property at any point during the period from 28 August 2006 and 28 March 2007.
Financing and intention
Having looked at the financing of the appellant’s purchase of the property, the FTT concluded that the appellant could not realistically have expected to occupy the property beyond November 2007 because she had no credible plan for refinancing. Without such a plan, the appellant could not have had an expectation that she would occupy the property with any degree of permanence.
The FTT did not consider that the appellant’s absence from the electoral roll for the London property gave an indication of the appellant’s intentions for it. However, the FTT concluded that there was no time between 14 July 2006 and 12 July 2007 when the appellant realistically intended to make the property her permanent home, and that the appellant purchased the property knowing ‘it was a good deal’ and that it would increase in value once the tenant left.
The property was held not to have been the appellant’s main residence because she did not occupy it with the intention that it would be her permanent home, and therefore the appellant was not entitled to private residence relief.
The FTT also held that the appellant failed to comply with an obligation under TMA 1970, s 7 and that her failure to notify was negligent. The appellant’s appeal was dismissed. The discovery assessment and penalty were confirmed.
Comment
The report of this case was 42 pages long, which is indicative of the FTT’s forensic examination of the facts and evidence. Keeping detailed records in support of claims for private residence relief may be important to the outcome in some cases.
Lo v Revenue and Customs [2018] UKFTT 605 (TC)
