This case points to the need to take proper tax advice before doing anything to your home. Here Mr Gibson demolished his home in order to rebuild a larger version and then sold it before ‘properly’ living in it.
Many people would think that he would be able to benefit from Principal Private Residence (‘PPR’) relief here on the basis that he had lived on the plot for many years. This is not what the rules say! To get the relief an individual has to actually dispose of a residence that he has lived in.
Rather harshly Mr Gibson not only ended up having to pay capital gains tax on the gain but he also got handed a 50% penalty for negligent filing.
Tax payers need to appreciate that although it is a generous relief, PPR can be lost quite easily and sometimes for quite spurious reasons.
Mr Gibson would probably not have jeopardised his relief had he have simply extended his existing house without demolishing it – as it would then have been the same residence when he came to dispose of it. Once he took the drastic act of demolition, only a quality period of residence could have saved the day. His camping in the house grounds while work was done was just not good enough!
PPR throws up all sorts of complexities, in other areas too, and we have had quite a lot of fun advising on all sorts of strange fact patterns.
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