In part two of this article, Neil Tipping examines HMRC’s vigorous approach to Private Residence Relief claims
Selling the land after selling property
A common issue relates to where you want to keep hold of part of a large garden after you’ve sold your home with a view to selling it to a property developer. There’s no problem with that part, however: you may be in for a nasty shock when you tell your accountant because the land you retain no longer attracts PRR as, at the point you sold it, it was no longer your home.
Partitioning the land
You’ve owned your home for a number of years and it has a large piece of land around it (the total area owned is three acres, so more than the permitted area of 1.235 acres). Five years ago, you partitioned 1.5 acres of it because you were contemplating selling it but the deal fell through and you’ve just let the land remain fallow with a six-foot fence partitioning it off from the rest of the garden. A property developer has just offered you a significant sum for the fenced off land – the only problem is, it’s no longer part of your garden nor is it, arguably, necessary for the use and enjoyment of your property. You may have to pay capital gains tax on the partitioned area sold.
A temporary move?
PR reliefs are generous and extend to temporary absences from the property – perhaps for a job move overseas, or to go look after a chronically sick family member. If you eventually move back in, the legislation gives you a theoretically unlimited period of deemed occupation if you move abroad temporarily to take up an employment (S.223(3)(b) TCGA 1992 ) If it isn’t an overseas posting, the limit is 11 years plus any period of letting (subject to the limit outlined below).
However, if you fail to move back in, unless you remain in job related accommodation at the point you sell the property, the most you’ll get is eighteen months additional relief (to be reduced to nine months after April 2020). If you’ve let out your property in your absence, there may be some further relief due, albeit this too is subject to change in 2020 where lettings relief will change from the lower of:
• the gain applying to the let period, and
• the total amount of private residence relief otherwise claimable on the disposal
to a more restrictive test giving relief only where landlord and tenant are in occupation of the property at the same time.
You own/occupy more than one home
You can only claim relief for one property as your private residence during any particular period in time (married couples can only claim relief on the same property).
Accordingly, if you own two properties, you might want to consider making an election to HMRC to treat one of those properties as your private residence – usually the one where you are expecting to make the largest gains. If you don’t, HMRC will look at the factual residence and choose one for you.
If one spouse moves out and the other remains in the marital home, provided the outgoing spouse does not file a main residence election with HMRC, if the outgoing partner’s share in the property is eventually sold/gifted to the spouse who remained resident, (s)he can claim PRR for the whole period including the period during which (s)he was not in occupation. However, complex divorces can take many years to resolve and the need for both parties to move on to new lives can trump any potential tax consequences of holding on for a settlement.
You didn’t move straight in
You live in rented accommodation but you’ve purchased a renovation project which will take eight years of your weekends and evenings to complete and which you intend moving into once the Grand Designs team have finished filming. Sadly, none of that eight years will qualify for PRR as the concession only gives you 12 months as of right and an additional 12 months for circumstances where you are prevented from moving in which are beyond your control.
Do note, however, that HMRC’s view is that this is an all or nothing concession so if you exceed the 24 months, essentially you get no relief for that eight-year period. However, the recent case of McHugh & Anor  TC 06605 found that HMRC’s view of this concession was incorrect and the taxpayer in this case was granted 24 months additional relief despite the fact that he clearly exceeded the 24 months before he moved into the property.
Property is used for your business
You own a four-level property, and two levels house your business where six employees attend each day during your period of ownership. You can’t claim relief on the whole property even though you and your family live on the other two levels. However, you may be able to claim rollover relief or possibly entrepreneurs’ relief on the business proportion dependent upon the circumstances.
Inadequate proof of renting
It is possible to get PRR if you leave a property for whatever reason and rent it out. The relief is limited but, under average circumstances, can still be valuable.
However, it remains incumbent on the owner to actually prove that they rented a property out during the period of ownership and, if the period of rental was (say) a decade ago, such proof may be hard to find. Accordingly, it is important to retain records such as rental agreements to demonstrate that the criteria for the additional relief have been met.
The above list is, of course, by no means exhaustive, but HMRC has recently demonstrated an appetite for challenging PRR claims, often making assertions which bear no relation to the reality of the situation but which inevitably end up with a partial or full denial of relief and a significant tax bill.
As with all such issues, the advice to clients should be to plan in advance for anything that may be non-standard such as the intention to sell part of your land and for agents to ensure that they build in a question concerning the sale of the private residence (and land around it) into their end of year tax return questionnaire.
• Neil Tipping is a Senior Tax Consultant at CronerTaxwise.
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