When HMRC may query a PPR claim

Every property sale is potentially taxable under Capital Gains Tax (CGT) rules. When an individual sells their only or main residence, generally the gain is exempt from CGT due to Principal Private Residence (PPR) relief. However, we are so used to saying this that we are in danger of forgetting the two conditions that must be satisfied for a claim to succeed.

The property must:

• not have been purchased 'wholly or partly' for making a gain; and
• be the individual's only or main residence at some point of ownership or claimed to be so

Cases that prompt questions by HMRC are where a property has been bought and sold within a relatively brief period; here HMRC will be looking at whether the taxpayer is, in reality, trading rather than buying a permanent residence. If HMRC are not satisfied that the relief is due they will look at whether the owner had any intention of living in the property permanently and require proof that the property has been lived in as the PPR.

HMRC activity

Recently HMRC have been targeting self-build builders, questioning as to whether the property has been built with the intention of it being a main residence. If a self-builder repeats the process of building, moving in, selling and rolling equity gains into subsequent houses, HMRC may take the view that the self-builder has become a business and seek to tax the gains as income rather than as exempt under the CGT rules. Such a situation is more likely if the person has no other income or works in the building trade.

Proving 'permanency'

HMRC will require proof that the property has been lived in as the PPR. However, there is no set rule as to the number of days of residency and there will be circumstances where the 'intention' has been to live 'permanently' but for some reason was not possible.

What to if HMRC query your PPR claim

Should HMRC query your PPR claim the following may help in your appeal:

• Documentary evidence to show that you have been living in the property, e.g., home insurance bills, telephone bills, DVLA records or credit reference agency records, utility bills in the owners' name at the property address.
• The property address being on the electoral register in the owners' name.
• Receipts confirming purchase of furniture etc for the property.Bank accounts registered at the address.

A final suggestion is for the owner to introduce themselves to neighbours to let people know who lives there.

About the Author

Paul Newbold

Partner

After qualifying with KPMG where he gained significant audit experience, Paul joined Torgersens in 1991 and became the firm’s audit partner in 2000. Paul employs his broad range of financial skills to provide commercial and accounting advice to a range of owner-managed businesses in the independent retail, education and professional services sectors. He also has extensive experience dealing with charities, Registered Social Landlords and not-for-profit organisations and co-operatives.   Outside of work, Paul likes to visit Eastern France and South-West German and read novels by David Morrell, Michael Blake and Harper Lee. He also likes watching films, his favourite is The Shawshank Redemption.

To get in touch please e-mail paul.newbold@torgersens.com.