[2011] UKFTT 619 (TC)
TC01461
Appeal number
TC/2010/08104
Appeal
against HMRC’s decision that the Appellant was not entitled to Principal
Private Residence Relief on two properties – appeal allowed
FIRST-TIER TRIBUNAL
TAX
MR
A.J.CLARKE Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: S.M.G.RADFORD (TRIBUNAL JUDGE)
H.MYERSCOUGH
ACA, CIOT
Sitting in public at Portal
House, Colchester CO2 7BA on 18 July 2011
Mr J Tile for the Appellant
Mrs E.Gardiner the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against the assessments made by HMRC on 16 January 2009 for the tax year ended 5 April 2003 and on 9 January 2009 for the tax year ended 5 April 2006.
2. The
assessments were raised following an enquiry by HMRC which decided that the
Appellant was not entitled to Principal Private Residence in respect of two
properties, 60 Nayland Road and 58a Nayland Road.
3. The
Appellant gave evidence at the Tribunal.
Background and facts
4. The
Appellant was married and has two daughters. Prior to purchasing the properties
in Nayland Road he lived at the matrimonial home Oaks Farm.
5. The
firm operated by the Appellant was operated from a barn behind Oaks Farm and
all mail was addressed and delivered to the offices in the barn or if addressed
to the house the postman knew to deliver it to the barn.
6. The
Appellant’s wife was having an affair and was under the care of a psychologist.
During the period that the Nayland properties were owned she attempted and
threatened suicide. A letter confirming her fragile state of mind was produced
to the Tribunal.
7. The
Appellant is now divorced. Prior to the divorce the Appellant purchased 60 Nayland Road on 17 July 2002 improved it and moved in with his elder daughter. Oaks Farm
was valued at the same time but the Appellant’s wife refused to agree to its
sale.
8. 60 Nayland Road was situated on a direct route between Oaks Farm and the children’s school.
9. From
the time he moved in the Appellant considered Nayland Road to be his main
residence and letters were provided to the Tribunal supporting this including
letters from his ex-wife’s parents.
10. The Appellant
purchased the property with a view to permanently leaving Oaks Farm in order to
provide a sanctuary for his children away from the very high emotional stress
being felt at the matrimonial home.
11. The Appellant
gave evidence that the property was immediately habitable having previously
been owned by an older person who had died. He moved in as soon as he completed
on the property and begged and borrowed furniture so that the children could
come and stay for two or three days at a time.
12. He took a twelve
month business loan from NatWest bank as this was the fastest and cheapest
route for him to raise the funds to purchase the property. He was able to do
this with the backing of his bank manager and had the loan in three days which
was far quicker than going the mortgage route which would have taken six to
eight weeks. He hoped that by the time the twelve months was up Oaks Farm would
be sold.
13. His intention
was to sell the land attached to the house to pay off the bank loan. He
obtained planning permission to build a detached house in the garden on 15 November 2002 but then his business partner suggested that he should develop the land
himself. The address of the new property was to be 58a Nayland Road.
14. In order to
obtain the funds to do this 60 Nayland Road was put on the market in December
2002 and sold in March 2003 and the Appellant went to stay at his mother’s. At
the same time he attempted to sell the land but the sale fell through.
15. The Appellant
stated that work commenced on the new property and that he commenced living
there in July 2003. He moved from room to room as each room was completed.
16. In July 2005 his
wife attempted to commit suicide and he felt that he had no option but to move
back to the marital home to protect his children. He put 58a on the market and
it was sold in November 2005.
17. Oaks Farm was
eventually sold and his ex-wife moved to Norfolk with her lover. She rarely
sees the children and the Appellant now lives in a converted house with his
children.
The Legislation
18. Section 222(1)
of the Taxation of Capital Gains Act 1992 (“TCGA”) states that :
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, or
(b)land which
he has for his own occupation and enjoyment with that residence as its garden
or grounds up to the permitted area.
19. Section 222(5)
of the TCGA states
So far as it
is necessary for the purposes of this section to determine which of 2 or more
residences is an individual’s main residence for any period—
(a)the individual may conclude that question by notice
to the inspector given within 2 years from the beginning of that period but
subject to a right to vary that notice by a further notice to the inspector as
respects any period beginning not earlier than 2 years before the giving of the
further notice.
20. Section 223(1)
of TCGA states:
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.
21. Section 224 3)
TCGA states:
(3)Section
223 shall not apply in relation to a gain if the acquisition of, or of the
interest in, the dwelling-house or the part of a dwelling-house was made wholly
or partly for the purpose of realising a gain from the disposal of it, and
shall not apply in relation to a gain so far as attributable to any expenditure
which was incurred after the beginning of the period of ownership and was
incurred wholly or partly for the purpose of realising a gain from the
disposal.
HMRC’s Submissions
22. HMRC submitted
that at no time in the period of ownership was either of the two properties the
Appellant’s only or main residence and there was no intention for the Appellant
to live permanently in either of the properties.
23. If he did reside
in either of the properties throughout the period of ownership there was no
permanence to this residence and no evidence has been provided to show any
degree of permanence or any degree of continuity.
24. HMRC submitted
that whilst the Appellant might provide evidence of occupation of either
properties but HMRC would contend that is not compelling evidence that he
intended the property to be his permanent home.
25. The loan obtained
on 60 Nayland Road from NatWest confirmed that the property was purchased with
the intention to sell it but to retain the adjoining land for development of a
residential property.
26. There is no
evidence that any correspondence went to the Appellant at either of the
addresses in Nayland Road. Any correspondence during this period was sent to
the Appellant at his marital home at Oaks Farm or to Unit 8, 11 Grange Way Industrial Estate.
27. No change of
address was ever notified to HMRC for either property and no notice had been
served on an officer of the board to confirm which residence was the
Appellant’s main residence under Section 222 (5)(a) TCGA.
28. The health of
the Appellant's wife has no bearing on the decision made on these properties.
Appellant’s Submissions
29. Mr Tile
submitted that when the Appellant moved into Nayland Road he considered it to
be his main residence.
30. The Appellant
intended to dwell permanently at Nayland Road initially in the old the property
and then with his children in the new property.
31. Mr Tiles
submitted that evidence in the form of statements from friends and family of
both the Appellant and his ex wife had been provided to HMRC and the Tribunal
to support the fact that he left the home at Oaks Farm permanently to reside at
Nayland Road.
32. HMRC have
accepted that the Appellant resided at Nayland Road in both their letters. He
submitted that this changed the case from the argument that he did not live
there to an argument regarding his intention to remain with the degree of
permanence.
33. Mr Tile
submitted that the evidence provided demonstrated that the Appellant's ex-wife
was clearly having an affair and being manipulated by her lover as described by
her psychologist giving compelling evidence that life in the matrimonial home
would be arduous if not potentially dangerous for both the Appellant and his
ex-wife and children. With such raw emotions and the Appellant's ex-wife
determination to continue her affair the atmosphere was intolerable.
34. Mr Tile
submitted that the letter from Dr Stephen Lovett described the marriage and
concern for the children throughout the period in question and pointed out that
this letter was written prior to the HMRC investigation.
35. Mr Tile said
that the Appellant’s ex-wife’s treatment of her children at this time gave the
Appellant grave concerns for them. The Appellant had purchased Nayland Road with a view to permanently leaving Oak Farm and providing sanctuary for his
children away from the very high emotional stress being felt at Oak Farm.
36. Mr Tile
submitted that the loan obtained on 60 Nayland Road was the fastest and
cheapest route by which the Appellant could raise the funds to purchase the
property and had the full backing of his bank manager.
37. The letter
obtained by HMRC had been written by an assistant and was superseded by the
letter from his bank manager dated 14 April 2010 which clarified matters.
38. The loan
agreement signed by the Appellant and NatWest states that the loan is for the
purchase of residential property.
39. The Appellant’s
correspondence continued to go to the office at the rear of Oaks Farm where he
could collect it at will and the Appellant had always relied on his agent for
notification of his tax affairs. Notifying his change of address was therefore
not a priority for the Appellant.
40. Mr Tile
submitted that no notice is required when there is only one residence in
accordance with Section 222(5)( a) TCGA. The Appellant had only one residence
at Nayland Road and his ex-wife continued to live at Oaks Farm.
41. The Appellant
only eventually returned to Oaks farm for the sake of the children following
threats of suicide and then the eventual disappearance and attempted suicide by
his ex-wife.
Findings
42. The Tribunal
found the evidence by the Appellant to be truthful and credible.
43. The Tribunal
found that the correspondence from the Appellant’s psychologist provided
evidence of the necessity for the Appellant to move away from Oaks Farm to
somewhere he could bring his children in order to get them away from their
mother.
44. The Tribunal
found that at the time the Appellant moved into 60 Nayland Road he intended to
live there permanently.
45. We accept that
he took a twelve month business loan from NatWest bank as this was the fastest
and cheapest route for him to raise the funds to purchase the property and that
his intention was to sell the land attached to the house to pay off the bank
loan.
46. We found it
credible that after planning permission was received he decided to develop the
property himself and sold 60 Nayland Road to obtain the necessary funds and
moved in with his mother until the new property was habitable for him and he
could move in there permanently.
47. We did not
attach too much weight to the Appellant’s failure to change his address as he
continued to attend his offices behind Oaks Farm.
48. We accept that
ultimately he had to move back to Oaks Farm after the disappearance and suicide
attempt by his ex-wife.
49. We find that the
Appellant is entitled to Principal Private Residence Relief in respect of the
two properties.
Decision
50. The appeal is
allowed.
51. 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.
TRIBUNAL JUDGE
RELEASE DATE: 7 September 2011
