[2012] UKFTT 258 (TC)
TC01951
Appeal numbers:
TC/2011/05657
TC/2011/06155
CAPITAL
GAINS TAX – Private residence relief – meaning of “residence” – Section 222
Taxation of Chargeable Gains Act 1992 – Appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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MICHAEL J HARTE
BRENDA A HARTE
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE CHRISTOPHER STAKER
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MR J MIDGLEY
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Sitting in public in London on 6 March 2012
Mr M Finch for the Appellant
Mr P Shea for the Respondents
© CROWN COPYRIGHT
2012
DECISION
Introduction
1. These are
joined appeals by the two Appellants who are a married couple. Each of the
Appellants appeals against a closure notice, amending their 2007/08 self-assessment
tax return under s.28A(1) and (2) of the Taxes Management Act 1970. The
Appellants had in their tax returns claimed capital gains private residence
relief (“PRR”) in respect of the disposal during that year of a residential
property which is referred to below as “Alder Grove”. The HMRC position, as
reflected in the closure notices, is that PRR was not available to the
Appellants in relation to the disposal of that property, and that they are
therefore liable to capital gains tax on it.
2. The documents
before the Tribunal included a list of facts not in dispute, as follows.
3. The
Appellants bought a property, referred to below as “Crofts Road”, before May
2007 and still own it. At all times it has been a private residence of
theirs. This property is approximately 6 miles from Alder Grove. Mr Harte
(referred to below as the “first Appellant”) inherited Alder Grove on the death
of his father on 24 May 1992. It was occupied by the first Appellant’s step
mother Frances Harte until her death on 20 May 2007. On 21 June 2007,
ownership of the property was transferred from the first Appellant to joint
ownership of the two Appellants.
4. During the
Summer of 2007, the owner of the property neighbouring Alder Grove expressed
interest in purchasing Alder Grove. Hoopers (Estate Agents) wrote to the first
Appellant on 23 August 2007 to confirm that they had taken instructions to
proceed with the sale of Alder Grove to the neighbour. Alder Grove was sold to
him on 19 October 2007. The first Appellant’s step mother’s furniture remained
in the property until it was sold.
5. The Thames
Water bill for the period 18 May 2007 to 31 March 2008 is dated 28 August 2007
and was addressed to “The Occupier”. The British Gas bill for the period 31
May 2007 to 3 September 2007 is dated 5 September 2007 and was also sent to
Alder Grove addressed to “The Occupier”. The final council tax bill, prepared
on 21 December 2007 for the period 20 May 2007 to 18 May 2007 did not include
any discounts for periods of non-occupation.
6. The
Appellants made an election under s.222(5) of the Taxation of Chargeable Gains
Act 1992 (“TCGA”) on 25 August 2008 to treat Alder Grove as their main
residence for the period 11 October 2007 to 19 October 2007. At all other
times, Crofts Road was the Appellants’ main residence for capital gains tax
purposes. There is no record of the dates that the Appellants actually
occupied each property.
Applicable legislation
7. Section
222 of the TCGA relevantly provides:
(1)
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 …
(5)
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 an officer of the
Board given within 2 years from the beginning of that period but subject to a
right to vary that notice by a further notice to an officer of the Board as
respects any period beginning not earlier than 2 years before the giving of the
further notice, …
8. It was
common ground between the parties that the significance of the ability to make
an election under s.222(5) TCGA is that it entitles the person making the
election to 3 years of PRR even though the election need only be for a short
period.
9. It was
also common ground between the parties that for purposes of this appeal, if
there was a valid election under s.222(5) TCGA, the Appellants were entitled to
PRR in respect of the sale of Alder Grove. The HMRC case is that any
occupation of Alder Grove by the Appellants lacked the degree of permanence,
continuity or expectation of continuity sufficient to justify its description
as “residence” for PRR purposes, and that therefore it is not possible for the
Appellants to make an election under s.222(5) TCGA for it to be treated as
their main residence for any period. HMRC accepts that if Alder Grove was a
“residence” of the Appellants, then the election was valid. Thus, this appeal
turns on the narrow issue of whether Alder Grove was ever a “residence” of the
Appellants within the meaning of s.222(5) TCGA.
The hearing of the appeal
10. The Appellants were
represented by Mr Finch. HMRC were represented by Mr Shea. The Tribunal had
before it the case file, a documents bundle, an authorities bundle, a skeleton
argument for HMRC, and a statement by the first Appellant on behalf of both
Appellants. The first Appellant gave evidence and was cross-examined by Mr
Shea and the Tribunal asked him some questions. The Tribunal heard submissions
on behalf of both parties. Mr Shea referred to a number of First-tier Tribunal
(Tax Chamber) cases, of which Mr Finch said he had been given notice for the
first time at the hearing. The Tribunal directed that Mr Finch could within 14
days of the hearing file any additional written submissions on the cases
referred to in oral argument by the representative of HMRC. Pursuant to that
direction, Mr Finch filed two pages of further written submissions dated 16
February 2012.
11. In his written statement,
the first Appellant said as follows. He inherited Alder Grove in 1992, and
from that time until his step mother died on 20 May 2007, it was occupied by
her as a private residence. On her death, the first Appellant was in the
fortunate position of owning two houses with no financial pressure to sell
either. The Appellants decided at that time to retain both properties and use
both as private residences. Both properties were fully furnished and personal
belongings were left at both properties as most weeks the Appellants spent time
in each property. Unfortunately no records were kept as to when they stayed at
each property as they never dreamt that they would be required. During the
Summer of 2007 when talking to neighbours at Alder Grove, their immediate
neighbour expressed an interest in purchasing Alder Grove at a good price so
that he could redevelop both properties. The Appellants decided that it was
worthwhile talking to the agents which led to the property’s eventual sale.
During the period right up to the sale the Appellants used this property as a
private residence.
12. In cross-examination, the
first Appellant said as follows.
13. He purchased Crofts Road in 1968 or 1969, and he is still living there. Crofts Road is a 3 bedroom
house, at the end of a terrace of 6 houses. The Appellants have never lived
anywhere other than Crofts Road since Alder Grove was sold. Most of the first
Appellant’s stepmother’s family were in Ireland. The first Appellant knew
nothing about the executors or beneficiaries of her will. No one came to
collect her clothes from Alder Grove, and they remained there until they were
cleared out just prior to the neighbour taking over. It was in the first
Appellant’s father’s will that his stepmother could remain in Alder Grove as
long as she wished, but after her death, the first Appellant needed no
permission from the executors to move into Alder Grove as he owned the house.
14. On 21 June 2007 he changed
the title to Alder Grove to joint names with his wife, as it was natural for
him that it should be jointly owned. He did not do so earlier because it was
only after his step mother died that this became a question. This was not done
in contemplation of selling Alder Grove and he had no intention of selling it
until the neighbour expressed an interest in buying it. Originally the
Appellants intended to make Alder Grove their main residence, as it was a
better property than Crofts Road. There was no particular pattern to the
division of the Appellants’ time between Crofts Road and Alder Grove, and it
was weather dependent. The longest continuous period spent at Alder Grove was
approximately 3 weeks. It was wasteful to keep two houses, and the original
idea was to sell Crofts Road, but the Appellants were open to all thoughts.
They did not start the process of marketing Crofts Road.
15. The Appellants did not need
to “move in” to Alder Grove as it was already fully furnished. They only
needed to take personal items when going to Alder Grove and then eventually did
not need to take anything as they had everything at each of the houses. There
was a television at Alder Grove. The first Appellant presumes that his step
mother had a television licence, but he never took one out for Alder Grove. He
had no computer or internet at Alder Grove. He did not take pictures,
paintings or ornaments to Alder Grove. The only work he did on Alder Grove was
to fix one leaking gutter. He did not entertain any family or friends at Alder
Grove, and none came to stay there. He did not have household insurance for
Alder Grove. He did not inform the insurers of Crofts Road that he was no longer
living there on a permanent basis and was unaware that he was supposed to do
this.
16. The first Appellant does not
know why bills for Alder Grove were in the name of “The Occupier”, but it might
be that his stepmother put the bills in the name of “The Occupier” after his
father died, as this was the sort of thing she would do. There were no formal
meter readings after his stepmother died. Anything that she had not paid, the
first Appellant would have just paid.
17. The neighbour expressed
interest in buying the property in the Summer of 2007. There was no valuation
of the property. The first Appellant did his own research into the value of
the property and achieved the price that he thought it was worth in negotiation
with the buyer. All that the agent did in effect was to put him in touch with
the purchaser.
18. In re-examination, the first
Appellant said as follows. The property that he took to Alder Grove he left
there. He paid full council tax for Alder Grove on the basis that both
Appellants were living there, even though he could have got a discount if the
property was unused or if there was only a single user. There were no funds in
his stepmother’s estate from which he could have claimed payment of bills.
19. On behalf of HMRC, Mr Shea
submitted as follows.
20. Under s.50(6) of the Taxes
Management Act 1970, the onus of proof is on the Appellants to demonstrate on
the balance of probabilities that they have been overcharged to capital gains
tax by the assessments appealed against.
21. The Appellants are not contending
that they occupied Alder Grove on its own for all of this period, or even for a
protracted part of it. They contend that they occupied Crofts Road and Alder
Grove simultaneously, such that Alder Grove became one of their residences.
22. Section 222(5) TCGA makes
clear that for PRR to apply, the property must have been occupied by the
individual as his residence at some point during the ownership. A “residence”
is not defined in the Act and therefore takes its ordinary meaning. The
ordinary meaning is the dwelling in which a person habitually lives, in other
words, his or her home. The term “residence” has been considered in numerous
cases. Whether a period of occupation constitutes residence is a question of
fact and a test of quality over quantity. In Sansom v Peay (1976) 52 TC
1, Brightman J said that “The general scheme of s.29 [of the Finance Act 1965]
is to exempt from liability to capital gains tax the proceeds of sale of a
person’s home”. In Frost v Feltham (1980) 55 TC 10, Nourse J said that
“A residence is a place where somebody lives”. Reference was made also to Fox
v Stirk [1970] 3 All ER 7 and Goodwin v Curtis [1996] BTC 501 (High
Court), [1998] BTC 176 (Court of Appeal). PRR recognises that that increases
in property values are offset by inflation, and is intended to ensure that
individuals are not disadvantaged when trying to move home. It is an important
relief for residences, and is not available for holiday homes or investment
properties.
23. Occupation of a property, or
merely staying in a property, is not sufficient on its own to make the property
a residence for PRR purposes. It must be occupied in such a manner that it
becomes a person’s home. The authorities give prominence to certain factors,
such that the occupation must exhibit a degree of permanence, continuity or
expectation of continuity, that temporary occupation of a property does not
make it a residence, that the test is of quality of occupation over quantity.
On the facts of this case, these factors were not present. The fact that the
property title was changed to joint names on 21 June 2007 despite the fact that
the first Appellant had already owned it for 15 years suggests that the
transfer of title was in contemplation of sale, to enable both Appellants to
benefit from PRR. It is improbable that a person would maintain two residences
so similar in nature and so close to each other.
24. Crofts Road has been the
Appellants’ residence for many years and remains so to this day. Alder Grove
was available to the Appellants as a potential residence between 20 May 2007
and 19 October 2007. The two properties are 6 miles apart. Both are three
bedroom properties in residential suburban locations. Any occupation of Alder
Grove was in the manner of temporary stays and the property was not being
occupied as a residence. Bills were not put in the names of the Appellants and
the property was under offer of sale within 3 months of the first Appellant’s
step mother’s death. Once the decision to sell had been taken, any occupation after
that date could not be said to possess any degree of permanence, continuity or
expectation of continuity. HMRC accepts that the short period of occupation,
as nominated, is not in itself a bar to making Alder Grove a residence, but in
the circumstances of this case, it was not.
25. Mr Shea also referred to Springthorpe
v Revenue & Customs [2010] UKFTT 582 (TC) (“Springthorpe”); Moore v Revenue & Customs [2010] UKFTT 445 (TC) (“Moore”); Metcalfe
v Revenue & Customs [2010] UKFTT 495 (TC) (“Metcalfe”) and Clarke
v Revenue & Customs [2011] UKFTT 619 (TC) (“Clarke”).
26. In reply, the following was
stated on behalf of the Appellants. The Appellants were not close to the first
Appellant’s stepmother. Prior to her death, the first Appellant never felt
that he owned the property. Thereafter, he began using it, and that is why he
then put it in joint names. The decision to sell it came only later. Alder
Grove was not like a hotel room. The Appellants had a lot of personal property
there. Alder Grove was the better property, and the Appellants might still be
there today if the opportunity to sell had not arisen. There was a period of
uncertainty in which the Appellants decided which property to retain.
27. The further written
submissions on behalf of the Appellants stated amongst other matters as
follows. Metcalfe is distinguishable, because in that case the
appellant had never lived in the property. Springthorpe is
distinguishable because in that case the property was under renovation and
uninhabitable and exempt from council tax for that reason. Moore
involved a very short period of residence while renovations were undertaken,
and again no council tax was paid for this period. Clarke is the more
relevant case. In this case, the Appellants considered at the time that Alder
Grove was a private residence and the Appellants intended to retain it as such.
The Tribunal’s findings
28. It is for the Appellants to
satisfy the Tribunal on the balance of probabilities that they occupied Alder
Grove as a residence.
29. In Springthorpe, the
Tribunal said at [79]:
It is clear from the authorities, in particular the
decision of the Court of Appeal in Goodwin v Curtis (HM Inspector of Taxes),
that the occupation of a property must have some degree of permanence, some
degree of continuity or expectation of continuity in order for that occupation
to qualify as residence (see, in particular, the comments of Schiemann LJ cited
in paragraph 74 above). It is clear that the test is a qualitative test rather
than one which looks predominantly at the period during which a property was
actually occupied. As Millett J said in Moore v Thompson (HM
Inspector of Taxes) (at page 24 cited in paragraph 70 above) even short or
occasional residence in a property can make that place the taxpayer's
residence. However, Millett LJ in Goodwin v Curtis (HM Inspector of Taxes) himself
contrasts short or occasional residence with temporary occupation, which
latter, he says, does not make a person resident at a particular address. The
factor which the learned judge clearly had in mind was the quality of
occupation -- the degree of permanence, the degree of continuity, or the
expectation of continuity -- which is a question of fact and degree to be
determined by this Tribunal.
30. On the facts and evidence of
that particular case, the Tribunal said at [81]:
Putting the case at its highest from the Appellant’s
viewpoint, the evidence produced to us seemed to indicate the he had not
definitely made up his mind, when doing the renovation work, whether to sell,
let or live in the house when it was completed. We have concluded that, to the
extent that the Appellant did occupy the Property, he did so for the purpose of
renovating the property rather than occupying it as his home which he expected
to occupy with some degree of continuity. Thus the quality of his occupation
and his intentions in respect of his occupation of the Property do not satisfy
the test in section 222 TCGA.
31. In Metcalfe at [9],
the Tribunal concluded on the basis of the evidence in that case that:
Even if the Tribunal was satisfied
that the Appellant had, for a time, occupied the apartment at Westgate as his
dwelling house, the question for determination is whether such occupation
amounted to residence. The Tribunal did not accept that the Appellant had provided
any evidence to show that the occupation of Westgate had any degree of
permanence. The Tribunal found that the evidence pointed to the contrary in
particular the facts that the Appellant had not notified his change of address
to either his bank or Council and within either days or weeks of acquiring the
property the Appellant had obtained a valuation with a view to selling. On
those facts the Tribunal found that there was no degree of permanence and no
expectation of continuity. The Tribunal therefore found that, at best, the
Appellant had temporary occupation of Westgate, which was insufficient to
amount to residence.
32. On the evidence in the
present case, the Tribunal finds that the quality of occupation -- the degree
of permanence, the degree of continuity, or the expectation of continuity – was
not such as amount to “residence” within the meaning of s.222(5) TCGA.
33. It is clear that the
Appellants’ established residence was Crofts Road. After the first Appellant’s
step mother’s death, he found himself, as he put it, in the fortunate position
of owning two houses and being under no financial pressure to sell either.
However, he admits that he considered it wasteful to own two houses in this
way, and that the intention was to sell one. His evidence is that until his
neighbour expressed interest in buying Alder Grove, the Appellants were not
certain which of the two houses to retain. He said that the original idea was
to sell Crofts Road, but that the Appellants “were open to all thoughts”. He
conceded that the Appellants did not start the process of marketing Crofts Road.
34. If the Tribunal accepts that
evidence, that would establish that for a period of 3 months or less between
the first Appellant’s step mother’s death and the decision to sell Alder Grove,
the Appellants at least contemplated that they might make Alder Grove their
permanent residence. However, the evidence does not establish that they ever
did make it their residence. They never put any of the bills into their own
name. They never entertained or had friends or family to stay there. Until
the property was sold, the furniture and personal effects of the first
Appellant’s step mother remained in the house, as they were, notwithstanding
that the Appellants say that they were not close to her. The Appellants did
not move in any of their own furniture, pictures, or ornaments. They undertook
no work on the property other than to repair one drain. The first Appellant
said in evidence that the longest continuous period spent at Alder Grove was
approximately 3 weeks. In the absence of any other evidence of what periods
were spent at Alder Grove, the Tribunal is not persuaded that this information
is necessarily reliable. However, even if the Appellants did spend several
periods at Alder Grove, the longest being 3 weeks, the Tribunal is not
persuaded that in all the circumstances such periods have the quality of
“residence” within the meaning of s.222(5) TCGA.
35. To adopt the language of Springthorpe
quoted above, putting the case at its highest from the Appellants’ viewpoint,
the evidence indicates that in the period between the first Appellant’s
stepmother’s death until the decision was taken to sell the Alder Grove, the
Appellants had not made up their mind whether to sell it or whether to live in
it. They may have spent short periods there, perhaps to see what it would be
like if they were to make it their residence. However, the quality of the
occupation and the intentions in respect of the occupation of the property were
on the evidence not such as to satisfy the test of “residence” in section 222
TCGA.
36. It follows that this appeal
is dismissed.
37. 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.
DR CHRISTOPHER STAKER
TRIBUNAL JUDGE
RELEASE DATE: 18 April 2012
