Private residence relief provides relief from capital gains tax arising on the disposal of a property which has been the taxpayer’s only or main residence.
In the recent tribunal decision of Hezi Yechiel TC06829, consideration was given as to whether, for the purposes of the legislation, Mr Yechiel occupied the property in question, 6 Beaufort Drive, as his only or main residence.
Mr Yechiel purchased the property in September 2007 intending it to be a family home for him and his then fiancée. The property, which was 15 minutes from his parents’ house, needed a lot of work. They married in 2008 and separated in January 2011. Mr Yechiel moved into the house in April 2011. In October 2011 the property was advertised for sale and Mr Yachiel moved in with his parents. Mr Yechiel was present each morning in the property during the period April to July 2011. His builder had previously ‘kitted up’ a bedroom and kitchen for him. The property was sold in August 2012 at a significant gain.
In determining whether the property was occupied as a main residence, the Tribunal considered the ordinary English meaning of ‘reside’ which is ‘to dwell permanently or for a considerable period of time, to have one’s usual or settled abode, to live in a particular place’.
In determining whether a property qualifies as a `residence’, the nature, quality, length and circumstance of the occupation are taken into account. Weight is also given to the taxpayer’s intention – in this case to have a ‘bolt hole’ to escape the stress of his divorce and for it to be a long-term home.
The tribunal considered what Mr Yechiel did in the house. It had a working kitchen and bedroom and (the Tribunal presumed) a bathroom. While Mr Yechiel slept there, he did not cook there or do his washing there; when he ate there, it was mainly take-way food. He brought only a bed and a side table for the property. During the period Mr Yechiel spent a significant amount of time at his parents’ house, eating there and doing his laundry there.
The Tribunal dismissed Mr Yechiel’s appeal. They found his occupation lacked sufficient quality of occupation, concluding ‘that to have a quality of residence, the occupation of the house should constitute not only sleeping, but also period of ‘living’, being cooking, eating a meal sitting down, and generally spending some periods of leisure there.
It is important that clients appreciate the quality of occupation as well as the quantity when seeking to claim private residence relief.