A recent case has highlighted the old adage of ‘quality not quantity’ when it comes to Principal Private Residence relief (‘PPR’). Despite having only resided in his property for 10 weeks out of the 4 years and 8 months of ownership, Mr Davidson was able to obtain PPR relief against the majority of the gain realised on the disposal of the property.
The case very much hinged on intention and mitigating circumstances and also Mr Davidson’s credibility.
Mr Davidson planned to live in the property as soon as its refurbishment was complete and then retain it as his main residence for the foreseeable future.
Mr Davidson acquired the property in London in June 2008 as his new PPR, in order that he could sell a more valuable London property that was his previous residence. The financial crisis ultimately meant he was forced to let out both properties and live in temporary accommodation.
When Mr Davidson and his wife eventually did take up residence in March 2011 they fully expected this to be for the long-term. However, within 10 weeks there were reported incidents of domestic violence and Mr Davidson no longer felt safe living with his partner and so they both moved out in May 2011.
Despite there being limited external evidence that the London property was Mr Davidson’s main residence (for example, Mr Davidson was on the electoral roll in Derbyshire where he owned a weekend property and he was not registered with a doctor in London), HMRC found Mr Davidson a credible witness. They found he had legitimate intentions and there were unfortunate mitigating circumstances.
Mr Davidson obtained relief on the majority of his gain realised on sale of the property covering the period of occupation and the final three years as deemed occupation (as the sale was before April 2014)
This case highlights the subjective nature of what actually constitutes a residence. It is also a timely reminder that HMRC will look further into cases where they suspect that there is no real residence. Although the tax payer was successful in this case not everyone will be able to place reliance on an aggressive spouse to win a tax case. It would generally make sense to take common-sense steps to evidence your residence intentions such as getting on the electoral roll and registering with a doctor. Also, of course, make the place your home!
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