Capital gains tax – Principal private residence relief – Section 222(1) of Taxation of Capital Gains Act 1992 – Appellant purchasing property with a view to redevelopment and use as family home – Appellant losing interest in that project after death of sister and spending most of time at sister’s former home – Whether liability to capital gains tax arising on subsequent sale of property – Whether property appellant’s only or main residence so as to attract principal private residence relief – Appeal dismissed
In 2000, the appellant’s wife divorced him and he was made redundant from his job. In 2003, he found a property that he proposed to purchase and redevelop as a home for himself and his daughter. He obtained the necessary planning permission and completed the purchase in May 2003. The purchase was funded by the proceeds of sale of his former family home and a business loan, which he aimed to replace with a normal mortgage in the future, on the assumption that he could find another job if necessary once the construction work on the property was completed.
Around the time the purchase was completed, the appellant’s sister died after a serious illness. The appellant lost all interest in his plans for the property and, although his household goods were moved into it, he spent most of his time at his sister’s former home. He advertised the property for auction with vacant possession in December 2003 and it was sold in January 2004 for £280,000. The appellant thereafter established a property company, working with his brother on the purchase and letting of properties.
The respondents considered that the purchase and sale of the property was a trading activity the profits and gains from which were taxable under section 18 of the Income and Corporation Taxes Act 1988. They made an amendment to the appellant’s self-assessment tax return for the year ending April 2004 to increase the tax payable by £12,981.67.
The appellant appealed. He contended that he had purchased the property as a family home, rather than with the intention of selling it for profit, but that he had lost all interest in living there after his sister died. The respondents conceded that the purchase and sale was not a taxable trading activity. However, they contended that liability to capital gains tax arose on the sale of the property, since it had not been the appellant’s only or main residence throughout the relevant period so as to attract principal private residence relief pursuant to section 222(1) of the Taxation of Capital Gains Act 1992.
Held: The appeal was dismissed.
The appellant had not intended to purchase the property to make a quick sale with resultant profit. However, after the death of his sister, his at the property had lacked the degree of permanence necessary for it to qualify as his principal private residence since, by his own admission, he had spent most of his time at his sister’s former home. The property was not his only or main residence and, accordingly, its subsequent sale did not fall within section 222(1) of the 1992 Act and did not attract principal private residence relief. Therefore, while the purchase and sale of the property did not involve any trading activity, a liability to capital gains tax arose on its sale without the benefit of principal private residence relief: Goodwin v Curtis (Inspector of Taxes) [1998] STC 475 considered.
The appellant appeared in person. Ms H Thorn appeared for the respondents.
Sally Dobson, barrister
