Will a short duration residence support a claim for PPR?

 In Tax

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Availability of Principal Private Residence relief where the owner of a flat only lived there for a very short time, and also had connections with other properties

Dutton-Forshaw v HMRC [2015] UKFTT 478

This case continues a long line of cases that have debated and ruled on the meaning of ‘only or main residence’ for the purposes of claiming Principal Private Residence relief (PPR) to reduce or avoid a claim for payment of capital gains tax (CGT) on the sale of a property. The Appellant had an increasingly large property portfolio in London, but also spent some of his  time, and owned property in, Lymington. The First Tier Tribunal was asked to consider whether a flat owned in London, occupied by Mr Dutton-Forshaw (the Appellant) for a mere seven weeks, was his ‘residence’ for the purposes of s.222(1) Taxation of Chargeable Gains Act 1992 (TCGA).

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The facts

During the period between 1994 and the sale of the property in question the Appellant had owned and occupied nearly a dozen properties, some in London, others in Lymington. He usually owned more than one of these properties at the same time. Throughout that period, he had also had the use of various properties in London owned by his company. To add a further complication, the Appellant at times stayed on his boat, moored in Lymington, instead of at any of these properties. In addition, in the latter part of that period he owned three more properties in London which he never occupied, and which were rented to third parties; two of these were commercial properties.Case Summary from LawSkills | Private Client specialist trainers

The Appellant started living with his (now ex-) wife, Ms Forshaw, in 1995, at a time when his work with the company he was running was almost all-consuming. It was in the same year that the Appellant bought his first property in Lymington, with the aim of escaping the pressures of his work in London when staying there. This first house in Lymington was soon replaced with a second. The couple married in 1997, and in October 1999 their daughter Emily was born. Throughout this time London had remained their main home, but following  Emily’s birth, Ms Forshaw felt very strongly that she did not want her daughter to be brought up in London. The couple sold both their London and Lymington homes, combining the proceeds to buy a new family home in Lymington.

The Appellant continued to spend significant amounts of time in London, staying most of the week in flats owned by the company. He often only returned to Lymington as dawn broke at the weekend, and even then would spend most of his time working. In 2002 the couple divorced.

Following the divorce, the family home in Lymington was sold. Ms Forshaw bought a smaller property in the same town, as did the Appellant, who found his own property just a few minutes away from where his daughter Emily was living with her mother.

Soon after the divorce the Appellant had begun a relationship with another woman who lived in Lymington, but he continued to spend significant amounts of time in London. When there, he stayed in flats owned by his company until, in June 2005, he bought a flat in Petersham Place. In June 2007, the Appellant elected, retrospectively, for Petersham Place to be treated as his main residence for CGT purposes from the date of its purchase in 2005.

The Appellant had, in the meantime, agreed to buy a property with his new partner and exchanged contracts on Upper Pennington House in Lymington in December 2005. Before completion could take place, however, his new relationship broke down. When the purchase of Upper Pennington House was completed in March 2006 the Appellant, who had decided to base himself in London again, was unsure what he would do with the property. In the light of his decision to be based in London he had in mind that he would sell the property. He had it renovated and the work was completed, for the most part, by June 2006, but the house was not in the event put up for sale.

The Appellant then decided that although he was based in London, he would let out the Petersham Place flat as it would command a high rent. He therefore began to look for a new flat for himself in London. He found a flat at 32 Cornwall Gardens in March 2006, completing its purchase a few months later at the end of June. It was the later sale of this flat that triggered the CGT charge with which this appeal was concerned.

Whilst all this was happening, Ms Forshaw had also begun a new relationship which quickly became serious. Ms Forshaw and Mr Schofield became engaged soon after they met, married in June 2006 and had a son in September 2006. At some time during this period (there was disagreement as to exactly when, the Tribunal finding it would have been some time during the Summer of 2006 but before September that year) Ms Forshaw began to discuss with the Appellant the possibility of her moving to Spain, where her new husband was working at that time. The Appellant was very much against the idea of his daughter living abroad, but was faced with the possibility that either Emily would move to Spain with her mother or that he would have to move back to Lymington to look after her.

After the sale of his previous Lymington home, which had dovetailed with the purchase of Upper Pennington House, the Appellant arranged for his bank statements and other formal post to be sent to Upper Pennington House (which was in the process of being renovated at this time). He also needed somewhere to stay in Lymington when looking after Emily, so he rented the top floor of a friend’s house until  June 2006, following which he lived on his boat when he visited. The Appellant’s evidence, accepted by the Tribunal, was that he did not spend a night at Upper Pennington House until 27 September 2006.

In July 2006 the Appellant bought a car that was registered in his name at Cornwall Gardens. At the end of July 2006 he applied for and obtained a parking permit for the car from the Royal Borough of Kensington and Chelsea. One of the conditions for obtaining the permit was that the individual’s main, permanent home must be in the borough. The Appellant surrendered the parking permit in September 2006, when he moved from Cornwall Gardens to Upper Pennington House. After this move, the Appellant lived in Lymington full time. He no longer maintained a flat in London, and Cornwall Gardens was rented out.

The law

Section 222 (1) TCGA 1992 begins as follows:

“This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in—

(a) a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence…”

Section 223(1) then confirms that:

“No part of a gain to which section 222 applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual’s only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period.”

When the Appellant sold his flat in Cornwall Gardens (which had been bought at the end of June 2006 and lived in from August–September that year) HMRC issued an assessment to CGT in respect of its disposal. The appeal to the Tax Tribunal was made by the Appellant of the basis that the gain was not chargeable as it qualified for PPR under sections 222 and 223 TCGA 1992.

The only issue before the Tribunal was whether the flat at 32 Cornwall Gardens was the Appellant’s residence for the purposes of s.222 TCGA. HMRC did not seek to argue that even if it was his residence, it was not his only or main residence as required by that section.

The decision

Although s.222 TCGA , and the following sections, set out when PPR will apply to relieve a sale from the payment of CGT, the Tribunal noted that the section does not provide any guidance as to the circumstances in which a dwelling house should be treated as a residence. The issue was addressed by the Court of Appeal in Goodwin v Curtis [1998] STC 475. Millet LJ gave the leading judgment in that case and the Tribunal stated the general principles which can be drawn from his judgment:

(1) The word ‘reside’‘ is an ordinary word of the English language.

(2) It is necessary to look at the nature, quality, length and circumstances of a taxpayer’s occupation of a property in deciding whether it is a residence.

(3) Temporary occupation at an address does not make a person resident there.

(4) There must be some degree of continuity or some expectation of continuity to turn mere occupation into residence.

(5) The question of when occupation becomes residence is one of fact and degree for the Tribunal to decide.

The Tribunal noted that these are the principles which have since been applied by First Tier Tribunals in numerous cases which have addressed this question. In particular, “there has been significant emphasis on the need for some degree of continuity or some expectation of continuity to turn mere occupation into residence”. The derivation of this requirement is in Fox v Stirk and Bristol Electoral Registration Officer [1970] 3 All ER 7, where Widgery LJ said:

“Some assumption of permanence, some degree of continuity, some expectation of continuity, is a vital factor which turns simple occupancy into residence”

He continued, however, to comment that:

“Sometimes the difference between a resident and a mere visitor is clear for all to see”.

He felt that the question of whether someone was a resident or visitor was one which would admirably be dealt with by a jury (if it ever came within their jurisdiction) and it is on that sort of common sense jury basis that the distinction has to be made in more difficult cases.

The Tribunal in this case reasoned that, “Put in this way (i.e. distinguishing a resident from a visitor) it seems clear that the question of permanence or continuity should not be overstated. It is simply one of the factors to be taken into account in weighing up whether the property in question is a ‘residence’.” It was considered that the question as to whether a property is a person’s residence is a balancing exercise for the First Tier.

Counsel for the Appellant argued that the focus of the Tribunal should be on his intention when he moved into Cornwall Gardens at the beginning of August 2006, and not the length of his actual period of occupation. He argued that in the wider sense the Appellant’s home was undoubtedly in London in the Summer of 2006, some of the reasons he gave being as follows:

  • He had lived in London for the last 20 years (albeit that he had also lived in Lymington for the last 10)
  • It was where he had his business
  • It was where he was building his property portfolio
  • It was where he went to church (as evidenced by a letter from St Barnabas’ Church, Clapham)
  • It was where he was trying to find a new wife (he had joined a London dating agency after the breakup of his relationship)

Reasons including the following were then given for Cornwall Gardens being his home in the narrower sense during that period:

  • It was bought to replace his previous main residence at Petersham Place
  • He declared his intention to the local authority in applying for a parking permit
  • There was nowhere else that was his home
  • Although the Appellant’s period of occupation there was short, this was brought about by the unexpected circumstance of his ex-wife moving to Spain and his unwillingness for his daughter to accompany her.

Having considered the arguments put forward by Counsel for both sides, the Tribunal reached various conclusions. It had no doubt that the Appellant had indeed lived at Cornwall Gardens from 5 August 2006 to 26 September 2006. Its stated challenge, however, was to determine whether ‘the nature, quality, length and circumstances’ of his occupation made that occupation qualify as ‘residence’.

The Tribunal again noted that the need for permanence or continuity should not be overstated: it was one of the factors to be taken into account in weighing up all of the evidence. The Tribunal looked at the question of permanence or continuity given that the Appellant only lived at Cornwall Gardens for about seven weeks. They found that when the Appellant moved into Cornwall Gardens,

“he hoped to live there on a continuous basis but was aware that the circumstances might arise which would require him to move to live full-time in Lymington.”

Further findings were as follows:

  • Looking at the other circumstances, the Tribunal accepted that following the breakdown of his relationship the Appellant wished to be based in London.
  • They found that he did not occupy Upper Pennington House in Lymington until 27 September 2006.
  • They concluded that the Appellant could not have elected for Cornwall Gardens to be his main residence for CGT purposes as, at that time, he had no other residence unless his boat in Lymington counted as one. The Tribunal thought this ‘unlikely’.
  • The Tribunal was not swayed by the fact that the Appellant’s formal correspondence had been sent to Upper Pennington House. At that time he was looking for a new flat in London and did not know where he would be moving to. Upper Pennington House was therefore the logical address for the Appellant to nominate for this purpose at this time.
  • The Tribunal believed the Appellant’s application for a parking permit in London clearly supported the fact that he was expecting to be there on regular basis. They did not believe that he would have applied for the permit if he did not consider Cornwall Gardens to be his residence.
  • The Tribunal agreed with Counsel for the Appellant’s argument that although it is possible for an individual to have no residence at all, this would be a relatively unusual situation. They accepted that it would be a surprising result, in the circumstances of this case, if the Appellant had no residence during the period in question from 5 August–26 September 2006.

In the Tribunal’s view, for the reasons put forward by his Counsel, the Appellant would have considered London generally and Cornwall Gardens specifically to be his home during the relevant period.

The decision

The Tribunal concluded that the ‘nature, quality, length and circumstances’ of the Appellant’s occupation of Cornwall Gardens did make that occupation qualify as residence for the purposes of sections 222 and 223 TCGA. As the Appellant had no other residence during that period the Tribunal therefore found that Cornwall Gardens was the Appellant’s only residence for the period 5 August–26 September 2006, and PPR under these sections was available to him.

Practice points/ Points of interest

  • This case is an example of how residence of just a few short weeks’ duration can be sufficient to support a claim for PPR. It should not be assumed, however, that a similar length of occupation will lead to the same result in another case. All the surrounding circumstances will have a bearing on the decision of a Tribunal.
  • Sensible practitioners will advise any client who is seeking to establish a property as their main residence to arrange for bills to be sent to that property. Even so, this case shows that not having made such arrangements is not necessarily fatal to such a claim.
  • The Appellant submitted evidence in the form of a letter obtained from a church he attended in London, and information relating to his membership of a dating agency there. Any and all evidence of links to a particular location and residence can be useful in building up a picture for the Tribunal of a client’s commitment to a particular home as his only or main residence.

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