PRR: What You Need To Know About Moving Frequently

Situations arise where a taxpayer ends up moving from one property to another in a relatively short period of time. From HMRC’s point of view the issue is one of whether the move from one property to another is a series of linked transactions indicating a bending of the Principle Residence relief rules to avoid Capital Gains Tax, or whether each occupation was a genuine occupation of main residence. 

The facts of each case have to be considered very carefully.  

 

In Ives [2023] UKFTT 968 (TC); [2023] TC 08989, the taxpayer, a builder, bought and sold three residential London properties in five years.

  1. The Ringmer property: This was bought in 2008 and consisted of two flats. Mr Ives carried out considerable construction work and then sold the property in 2010 for £1.775m, as one dwelling. He made a gain of £1.015m. 
  2. The Wandsworth property: This was bought in 2010 for £750k, significantly renovated, and then sold for £1.5m in 2012. He made a gain of £750k. 
  3. The Crondace property: This was bought in 2012 for £1.73m, heavily renovated, then sold for £3.25m in 2013. He made a gain of £1.52m. 

 

Mr Ives claimed that each property was renovated to become a family home. He lived in each of the properties when he was renovating them. However, his wife only moved in once the property was habitable, which was frequently some considerable time later. He stated that the three moves were motivated due to a need to live closer to his family.

He stated that the purchase of the first home (Ringmer) was intended to be funded by the sale of the previous family home. However, it did not sell. Accordingly, Mr Ives accepted a very good offer for the property, after he had converted the two flats into one home, and made a gain in excess of £1m.

The Wandsworth house purchase was ‘a disaster’. He added, ‘It was noisy and there was a lack of parking’. He sold it for £1.5m, after significantly renovating it, making a gain of £750k. 

After he purchased Condace, the third property, his grown-up children were starting to relocate, so they decided to move again.

Mr Ives did not pay any tax on the total gains of £3.285m. He said that he was not trading in property and that each gain was exempt due to the sale of his family homes and that PRR was available against each gain and that the CGT payable was nil.

HMRC did not agree. They argued that he was trading in property. They claimed that he owed £715k in income tax and £283k in penalties, i.e. approximately £1m due to HMRC.HMRC stated that if he was not trading, CGT was payable of £400k and £160k in penalties.

Mr Ives appealed to the FTT. He obtained evidence from family members and friends that he had furnished all three properties and had held dinner parties in all of them, and had hosted guests overnight.

The judge decided that he had not acquired the properties with an intention to make a profit in the short term. Mr Ives had convinced him that he had acquired the properties as family homes. Accordingly, the transactions were not trading in nature. He had lived in them as his main residence, and so no CGT was payable.

Ruling in favour of Mr Ives, the judge stated:

‘Mr Ives moved into the properties on his evidence with a view to making them his home in the long term. On his evidence furniture was moved into the properties as soon as this could be done and the properties were then enjoyed as homes, albeit not for a very long period.

‘The evidence of the witnesses about when furniture was moved into the various houses and when they were enjoyed as homes is not specific as to dates, but a number of witnesses do speak of going to the properties for social purposes and finding them furnished.’

The judge found that ‘the profits arising as a result of Mr Ives’ dealing with Ringmer, Wandsworth and Crondance were not trading profits; they were investment gains which attract PPR’.

Therefore, Mr Ives’ appeal was fully allowed.

 

Each case is looked at on it’s own merit. It is not necessarily the length of time that a property is occupied but whether it was genuinely occupied as a main residence. Whilst Mr Ives carried out extensive renovations the properties in themselves were genuinely occupied as a main residence as evidenced by information provided to the tribunal. Clients should ensure that all other indicators of main residence occupation are also in place such as;-

  • Registering for council tax at the property
  • Updating the electoral register
  • Updating bank address details, driving license details etc
  • Ensuring all utilities are in your name at that address

If you would like to find out more on how we can help you with this topic then get in touch with us on 01902 711370 or via email enquiries@uklandlordtax.co.uk.

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