Election of private residence — Disposal of residence — Relief from capital gains tax claimed — Whether taxpayer obliged to elect principal residence within two years of acquiring second residence — Special commissioner holding that election took effect for period of two years prior to date of election — High Court allowing appeal by Revenue — Election must be within two years of ownership of two houses
The taxpayer owned and occupied three properties: Stockwell Park Crescent, London SW9, from November 1981 to July 1986; Balldown Farmhouse, Sparsholt, Wiltshire, from August 12 1985 to January 1989 and Sibella Road, Clapham, London SW4, from July 1986 to the present date. The taxpayer disposed of Balldown Farmhouse on January 26 1989 realising a chargeable gain of £224,874. He sought relief from capital gains tax on the basis that he had elected Balldown as his principal private residence on January 21 1988 with effect from January 21 1986. Section 101 of the Capital Gains Tax Act 1979 gave relief from tax on a gain accruing to an individual on the disposal of a dwelling-house which was his only or main residence. In so far as was necessary to determine which of two or more residences was an individual’s main residence, section 105(5) provided that the taxpayer should give notice in writing within two years from the beginning of the relevant tax period. That notice might conclude the question. Section 102 provided a computation for the fraction of a gain that should be chargeable to capital gains tax in a case where a dwelling-house had been the taxpayer’s main residence for part only of the period of his ownership. The tax inspector refused to accept the taxpayer’s argument that the part of his gain attributable to the farmhouse was represented by a fraction of which the numerator was five months (August 1985 to January 1986) and the denominator 41 months (the total period of his ownership of the farmhouse). A special commissioner allowed an appeal against that refusal but the Revenue appealed.
Held The appeal was allowed.
1. The two-year period began to run from the time when it first became necessary for an inspector to decide, subject to any election by the taxpayer, which of two or more residences was his main residence.
2. In the present case the taxpayer had the right to give notice within two years after the beginning of the period when he acquired Sibella Road that Balldown farmhouse should be treated as his main residence.
3. Accordingly, the chargeable period was represented by a fraction of which the numerator was 11 months (August 1985 to July 1986) and the denominator was 41 months.
Launcelot Henderson (instructed by the solicitor to the Inland Revenue) appeared for the Inspector of Taxes; David Ewart (instructed by Macfarlanes) appeared for the taxpayer.