First-tier Tribunal (Tax)

[2010] UKFTT 445 (TC)

TC00710

Appeal number:TC/2009/14925

CAPITAL GAINS TAX –  Relief on disposal of private residence – section 222 TCGA – whether property occupied by the Appellant was at any time in his period of ownership his only or main residence – period of occupation in question was less than 3 months immediately after purchase and was spent by the Appellant in effecting renovations – held on the facts that the occupation lacked the assumption of permanence, degree of continuity and expectation of continuity that would turn it into ‘residence’ – property subsequently let out and Tribunal found that the Appellant’s intention was to renovate it for letting and not for residence – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

JASON TERRENCE MOORE Appellant

-and-

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Capital Gains Tax) Respondents

TRIBUNAL: JOHN WALTERS QC (TRIBUNAL JUDGE)

JULIAN STAFFORD

Sitting in public at Eastbrook, 1, Shaftesbury Road, Cambridge on 25 June 2010

R.J. McMorran, R.J. McMorran Ltd., Chartered Certified Accountants, for the Appellant

Philip Oborne, Advocate, HMRC Appeals and Reviews Unit, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.     This is an appeal against an assessment to capital gains tax (CGT) made on 28 May 2008 on Jason Moore (the Appellant) for the year 2004/2005.  The assessment charged tax of £24,230.40, but this was later reduced, following the supply of further information to the Respondent Commissioners (HMRC), to £24,067.60.

2.      The Appellant sold a residential property (144 Bishop’s Rise, South Hatfield – hereinafter “the Bishop’s Rise Property”) on 30 June 2004 realising a gain.  HMRC contend that a chargeable gain arises on the disposal:  the Appellant submits that no part of the gain is a chargeable gain because section 222 Taxation of Chargeable Gains Act 1992 (TCGA) – relief on disposal of private residence – applies to the whole of the gain.

3.     We were provided with certain documentary evidence, and witness statements from both the Appellant and his wife, Mrs. Katie Moore.  In addition, the Appellant and his wife both gave oral evidence and were cross-examined by Mr. Oborne on behalf of HMRC.  The Appellant and Mrs. Moore (formerly Miss Archer) married in 2004.

4.     The evidence before us was as follows:

5.     The Appellant and his wife (then Miss Katie Archer) acquired the Bishop’s Rise Property on 10 December 1999 for a purchase price of £86,250 (or thereabouts) exclusive of costs of acquisition.  The Bishop’s Rise Property was a house in a terrace, built, the Appellant thought, in the 1960s. We were shown (part of) the Land Registry transfer document (Form TR1) confirming this.  In that document the transferee is stated to be the Appellant and Miss Archer.  The document shows the transferee’s intended address for service in the UK and for entry on the register as 103 Hereward Green, Colebrook Lane, Loughton, Essex, the address where the Appellant and Miss Archer were living at the time of the acquisition.

6.     The title in the Bishop’s Rise Property was transferred on 28 March 2001 from the Appellant and Miss Archer to the Appellant alone.  We were also shown (part of) the Land Registry transfer document (Form TR1) confirming this transfer.  That document gives the address of the Appellant and Miss Archer (as transferor) as 2 St. John Mews, Great Paxton, St. Neots, Cambridgeshire and the intended address of the transferee (the Appellant) for service in the UK and for entry on the register as the address of the Bishop’s Rise Property.  That document also shows the release of Miss Archer from her mortgage covenant with Barclays Bank plc in respect of a registered charge dated 10 December 1999. The document also contains the Appellant’s covenant with Barclays Bank plc to perform the covenants and conditions of the registered charge dated 10 December 1999 ‘as if he had been the sole borrower to the said charge’.

7.     It is clear from this evidence that the Appellant and Miss Archer acquired the Bishop’s Rise Property on 10 December 1999 with the assistance of a mortgage taken out with Barclays Bank plc by both of them.  The Appellant said in evidence that he had relied on Miss Archer for the mortgage (which was a repayment mortgage) and that ‘money came out of Hereward Green’, by which we understand that the mortgage was advanced on the basis of Miss Archer’s income and that she had raised some capital on her existing property to assist in the purchase of the Bishop’s Rise Property.  On 28 March 2001 Miss Archer transferred her share or interest in the Bishop’s Rise Property (subject to her obligation on the mortgage) to the Appellant and he assumed full ownership of the Bishop’s Rise Property and full responsibility for the mortgage.  The Appellant’s evidence was that he did not pay Miss Archer for the transfer to him of her share or interest in the Bishop’s Rise Property – ‘she signed it over’.  We were not told the amount of the mortgage on the Bishop’s Rise Property. The Appellant said in evidence that Miss Archer’s stake was ‘not significant enough to ask any money back’.

8.     The Appellant’s father was a builder.  The Appellant himself is skilled at building work, including plastering and decorating.

9.     On acquisition by the Appellant and Miss Archer, the Bishop’s Rise Property was not in good condition, but needed renovation.  The Appellant undertook the renovation work himself.  Mrs. Moore’s evidence was that she (at any rate) did not plan to move in to the Bishop’s Rise Property on the date of completion (10 December 1999) but to renovate the Bishop’s Rise Property and ‘move over gradually’ from her then home at Hereward Green, Loughton.

10.  The Appellant’s evidence (supported by Mrs. Moore’s evidence) was that they bought the Bishop’s Rise Property intending both to live in it as their home.  The location in Hatfield was more convenient for Miss Archer’s work than Loughton and was also convenient for access to the Appellant’s work at the time, which was in North London.  They had begun to live together shortly after they met.  When they bought the Bishop’s Rise Property they were both living at Miss Archer’s home at Hereward Green, Loughton.

11.  However as soon as the date of completion (10 December 1999) of the purchase of the Bishop’s Rise Property, these plans were frustrated because when the Appellant and Miss Archer went to the property after they had bought it they saw that the neighbours were unruly and that the neighbours’ property had a burnt fence, there were burning mattresses there, and children and dogs running around apparently not being controlled.  

12.  Because of this, we were told, Miss Archer changed her mind and refused to contemplate moving to live in the Bishop’s Rise Property.

13.  The Appellant said that he, however, was reluctant to abandon the plan for the Bishop’s Rise Property to become his and Miss Archer’s home at some point and he started the renovations on that basis. The Appellant in his evidence was a little vague about the extent of the renovation work that he did, but he mentioned replastering and redecorating the property and replacing the boiler and the carpets.  He undertook no structural work. 

14.  It appears from the Appellant’s oral evidence (although he was a little vague) that the renovations took about 4 to 6 weeks and were completed by February 2000.  During this period between 10 December 1999 and February 2000 he spent 1 or 2 weeks over Christmas staying with his parents in the Republic of Ireland. 

15.  The Appellant said that his relationship with Miss Archer came under strain because of disagreements between them over whether they would live in the Bishop’s Rise Property.  There was a temporary breakdown in their relationship in December 1999 and the Appellant’s evidence was that he used the time in Ireland to ‘clear my thoughts for the future’.

16.  He returned after Christmas to continue the renovations at the Bishop’s Rise Property hoping that he would be able to redeem the situation and that he and Miss Archer would eventually make it their home.

17.  In February 2000, the Appellant said that he moved back to Hereward Green, where Miss Archer had been living all the time.  This was presumably on completion of the renovations.

18.  The Appellant’s evidence was that because Miss Archer was at that stage still unwilling to live at the Bishop’s Rise Property, they then jointly decided to let it out. They did this at some time between February 2000 and the middle of that year (the Appellant could not remember when). In July 2000, when the Bishop’s Rise Property was let to tenants, there was a burglary.  Carpets, a cooker, curtains and a lawn mower belonging to the Appellant were stolen from the Bishop’s Rise Property.  The Appellant said there was a police record of the burglary, but we were shown no documentary evidence.

19.  This event, according to the Appellant, aggravated the problem in his relationship with Miss Archer and eventually there was a second breakdown in the relationship which led to Miss Archer transferring her interest and share in the Bishop’s Rise Property to the Appellant.  As we have noted, this happened on 28 March 2001.  However the Appellant did not the move back to the Bishop’s Rise Property to live in it.  Instead he rented it out (more or less continuously) until it was eventually sold on 30 June 2004 at about the time of his marriage to Miss Archer.

20.  The Appellant’s case was that he (alone) was living at the Bishop’s Rise Property as his residence during the period from the completion of the acquisition (10 December 2009) until he moved back to Hereward Green in February 2000.  He accepted that he had paid no council tax relative to that period of residence, and that he had no other documentary evidence (such as receipts for water rates, home insurance, telephone bills, DVLA records or credit reference agency records) showing that he was resident at the Bishop’s Rise Property in that period.  He said that he had not been advised to keep any such documentary evidence and had not done so, making the point that seven years had elapsed before (in 2007) HMRC opened their enquiry, and 10 years had elapsed before the hearing took place.

21.  The Appellant accepted in cross-examination that he had no furniture apart from a bed and a cooker at the Bishop’s Rise Property in the period between 10 December 2009 and February 2000.  He said he kept clothes at the Hereward Green property and at the Bishop’s Rise Property during that time, but that he did not spend any nights at the Hereward Green property during that time.  He owned no furniture, having lived a nomadic life up to that point. 

22.   When Mrs. Moore gave evidence, a letter dated 5 November 2008 to HMRC from R.J. McMorran Ltd., who were acting for her at that time, was produced.  This letter was written to persuade HMRC that a property at 56 Honeysuckle Gardens, Hatfield was her principal private residence for a period, between June and August 2001.  The letter referred, amongst other things, to properties Mrs. Moore had owned.  The details contained in the letter (presumably derived from instructions given by Mrs. Moore) were as follows:

23.  In June 2000 she bought a property at 2 St. John’s Mews, Great Paxton, Cambridgeshire. In May 2001 she bought the property at 56 Honeysuckle Gardens, Hatfield. In May 2003 she bought a property at 121 Hockwell Ring, Luton, and in March 2004 she bought a property at 38 Benedictine Place, St. Albans.

24.  Mrs. Moore said in evidence that she bought the property at 38 Benedictine Place, St. Albans as a ‘buy-to-let’ investment, and that she had bought the property at 121 Hockwell Ring, Luton as ‘a project for Jason [the Appellant] to renovate’. 

25.  The letter claimed that Mrs. Moore and the Appellant had occupied the St. John’s Mews property between January 2001 and June 2001 and (at least Miss Archer) had personal possessions there.  It claimed that they had occupied the Honeysuckle Gardens property between June 2001 and August 2001 and (at least Miss Archer) had had personal possessions there. 

26.  The letter stated that in April 2001 Miss Archer had been made redundant.  It recounted that in the summer of 2001 ‘whilst working part time in London, Mrs. Moore and her partner decided that as competition for marketing roles in the pharmaceutical industry [in which Mrs. Moore worked] was high, they would use her redundancy payment to have time out and travel’.

27.  The letter stated that Miss Archer and the Appellant had left the UK on 20 August 2001 and had returned on 11 June 2002 when they went to live with Miss Archer’s parents until September 2002, when they decided to move back to the St. John’s Mews property ‘having made the decision that the Great Paxton village community was the better place to start and bring up a family’.

28.  The letter stated that Miss Archer had had her personal possessions in storage between August 2001 and September 2002.  It stated that between September 2002 and August 2004, she and the Appellant were in occupation of the St. John’s Mews property and (at least Miss Archer) had personal possessions there.  Their daughter was born during this period (in May 2003).

29.  The Appellant’s evidence, which we accept, was that while he owned (or had an interest in) the Bishop’s Rise Property, he did not own any other property.  The St. John’s Mews property had been bought in Miss Archer’s name.

30.  However, we regret that we do not accept the totality of the Appellant’s evidence or of its confirmation by Mrs. Moore. We make findings of material facts on the balance of probabilities as follows.  We accept the evidence recorded above to the extent that it is not inconsistent with these findings.

31.  Miss Archer did not at any time intend to live at the Bishop’s Rise Property.  The Appellant was at all times committed to his relationship with Miss Archer, although we accept that it may have been under strain at times.  In particular there was no breakdown in the relationship between the Appellant and Miss Archer following the burglary at the Bishop’s Rise Property in July 2000. We consider that the Appellant’s evidence that there was such a breakdown is highly improbable in view of the facts that (i) the transfer to the Appellant of Miss Archer’s share and interest in the Bishop’s Rise Property was made without any payment to the Appellant – this was in a rising property market, when Miss Archer’s share in the Bishop’s Rise Property can be taken to have been valuable, notwithstanding the incumbrance of the mortgage; and (ii) the Appellant and Miss Archer continued to live together at various properties owned by Mrs. Moore, or while travelling, at least during the period from January 2001 to August 2004 – see: the evidence of R.J. McMorran Ltd.’s letter of 5 November 2008 (referred to at paragraph 22 above).

32.  We find that the Bishop’s Rise Property was bought by both Miss Archer and the Appellant, originally because Miss Archer’s income and assets were needed to raise the mortgage necessary for the acquisition.  We find that the transfer of Miss Archer’s share and interest in the Bishop’s Rise Property to the Appellant on 28 March 2001 for no consideration was not connected with any breakdown in the Appellant’s relationship with Miss Archer but was effected for other reasons.

33.  We reject the Appellant’s case that he (and/or Miss Archer) intended to make a home for himself/themselves at the Bishop’s Rise Property.  We find that the purpose of their acquisition of the Bishop’s Rise Property was to improve the property, using the Appellant’s labour and expertise, and then to rent it out, which is what in fact happened.  It was a ‘project for [the Appellant] to renovate’ in the same way that the later purchase in May 2003 of the property at 121 Hockwell Ring, Luton, was to be.

34.  The relevant legislation, as stated above, is contained in section 222 TCGA, which provides relevantly as follows:

“This section [which pursuant to section 223 TCGA provides relief from CGT] 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, …”

35.  The point at issue on the legislation is whether the Bishop’s Rise Property was at any time in the Appellant’s period of ownership “his only or main residence”.

36.  HMRC take the point that the Appellant (on whom the burden of proof rests) has not established that the Bishop’s Rise Property was his residence at all, let alone his only or main residence.  However it appears from the facts that during the period on which the Appellant relies (10 December 1999 to February 2000) Miss Archer’s property at 103 Hereward Green, Loughton, Essex may well have been the Appellant’s residence also.  On his own evidence, the Appellant lived at the Hereward Green property before 10 December 1999 and again from February 2000 and kept clothes there throughout.  On this basis, in order to qualify for CGT relief, the Appellant would have to show that the Bishop’s Rise Property was not only his residence but also his main residence.

37.  We have concluded that he has failed to make good either proposition.  We were referred to the following authorities (amongst others): Sansom v Peay 52 TC 1, Frost v Feltham 55 TC 10, Moore v Thompson  61 TC 15 and Goodwin v Curtis 70 TC 478.

38.  A residence for these purposes must be a person’s ‘home’ (Sansom v Peay, ibid.  at 6G), ‘a place where somebody lives’ (Frost v Feltham, ibid. at 13I).  However, ‘even occasional and short residence in a place can make that [place] a residence’ (Moore v Thompson, ibid.  at 24E).  Goodwin v Curtis is more helpful in assisting a resolution of the problem on the facts of this appeal.  The Court of Appeal in that case was unanimous in the view that ‘there must be some assumption of permanence, some degree of continuity, some expectation of continuity to turn mere occupation into residence’ (ibid. at 508I, 510H).

39.  Mr. Oborne’s case was that the Appellant’s occupation of the Bishop’s Rise Property did not have the quality that turned mere occupation of it into its being his residence.

40.  We agree.  We take into account the undesirable neighbourhood problems, Miss Archer’s refusal to live in the Bishop’s Rise Property, the fact that the Appellant has not proved that he registered as a resident of the Bishop’s Rise Property for council tax purposes, water rates purposes, or DVLA’s purposes, and that he could not produce insurance bills or telephone bills that would be some evidence of residence there. In stating this, we have also taken into account the fact that there had been a long time period between the events in question and the enquiry and hearing, but we have to mention that we found the Appellant’s evidence on crucial issues unreliable, vague and sometimes inconsistent.  For example, he said (which we accept) that he carried out the renovations in the period from December 1999 to February 2000, but at another point in his evidence he said that during the renovations he was working late as ‘it was summer time’ and stayed light until late.

41.  Crucially, the facts as we have found them point to the Appellant’s occupation of the Bishop’s Rise Property between 10 December 1999 and February 2000 as being, not residence there, but a period in which he was renovating it for subsequent letting, while intending and expecting to continue permanent residence with Miss Archer at her Hereward Green property or at whatever property she would move to from there.

42.  It follows that we dismiss the appeal and hold that the Appellant is not entitled to relief pursuant to section 222 TCGA in respect of the gain accruing to him on the sale of the Bishop’s Rise Property on 30 June 2004.

43.  As a postscript, we comment that extra-statutory concession D49, which was prayed in aid by Mr. McMorran on behalf of the Appellant, is not in point at all.  That concession relates to a short delay by an owner-occupier in taking up residence, by reason, for example, of carrying out alterations or redecorations.  For the concession to apply there must be a subsequent period of use of the house in question by the individual as his only or main residence, and we have found that in this case there was no period of such use.

44.  This decision is of necessity a decision in principle.  We were told that the figures cannot be agreed on the basis, as we have held, that the relief does not apply.  We therefore formally adjourn the appeal for the parties to agree the figures taking our decision in principle into account.  If the parties are unable to dispose of the appeal by agreeing the figures, the appeal must be relisted before us for us to resolve any continuing issues in dispute.

45.  There will be no costs direction made in consequence of the hearing. 

46.  This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN WALTERS QC

TRIBUNAL JUDGE

RELEASE DATE: 21 September 2010