PPR relief: Evidence is key!

Mark McLaughlin points out that occupying a property does not necessarily make it a ‘residence’ for capital gains tax private residence relief purposes. 

Most individuals owning a house will be aware of the principal private residence (PPR) relief rules for capital gains tax purposes. 

The PPR rules require that the dwelling has been occupied as the individual’s only or main residence at some point during their period of ownership (TCGA 1992, s 222(1)). Two fundamental requirements sometimes overlooked are occupation and residence. 

Occupied as a residence?
Firstly, the individual must have physically occupied the dwelling (although some ‘deemed’ periods of occupation are allowed in certain circumstances). HM Revenue and Customs (HMRC) does not consider that a mere intention to occupy is enough (see HMRC’s Capital Gains manual at CG64465).   

Secondly, the property must be occupied as a residence. Numerous tribunal and court cases have considered what constitutes a ‘residence’. HMRC’s view is that: “the test of residence is one of quality rather than quantity” (CG64427). 

Prove it 
Whether a dwelling has been occupied as an individual’s (only or main) residence is a question of fact. In the event of a dispute on this point, the onus of proof is on the taxpayer. This can be a difficult obstacle.

For example, in Simpson v Revenue and Customs [2019] UKFTT 704 (TC), the taxpayer had lived in a property since 2001. On 5 June 2013, she purchased another property (ECS). ECS was sold on 29 November 2013 at a gain. The taxpayer claimed PPR on the basis that ECS was her only or main residence throughout her period of ownership.  

However, the First-tier Tribunal (FTT) considered that inconsistencies in the taxpayer’s testimony made her evidence unreliable. Furthermore, the taxpayer said that significant works were undertaken while she lived at ECS, but in the tribunal’s view it defied logic and common sense that anyone would live in a small flat while extensive works were being carried out. The FTT concluded there was a complete absence of evidence to show that the taxpayer occupied ECS at all. 

Similarly, in Adams v Revenue and Customs [2020] UKFTT 56 (TC), the taxpayer lived in a property in London. In February 1994, she purchased another property (HM) and carried out extensive renovation works. From 1995 until early August 2013, HM was let to tenants. In February 2014, the taxpayer sold HM for a substantial gain. She claimed PPR relief on the basis that HM was her main residence for the last six months of her ownership (i.e. 14 August 2013 to 23 February 2014). 

However, the FTT considered it more likely than not that the taxpayer never occupied the property as a residence at any point in that period. The FTT found the taxpayer’s testimony unreliable in certain respects, and there was a complete absence of evidence to show she ever lived at the property at all. 

Practical tip
In both Simpson and Adams, the tribunal commented that even if the taxpayers occupied the relevant properties, that occupation did not have the necessary degree of permanence, continuity or expectation of continuity for the properties to be regarded as their residences (see Goodwin v Curtis [1998] STC 475). 

Individuals intending to claim PPR relief should therefore be prepared to demonstrate both occupation and residence with clear evidence.

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