Evidence Necessary to Support Private Residence Relief – Alison Clarke v HMRC
The recent case of Alison Clarke v HMRC illustrates the kind of factors that the tribunal will consider when assessing whether or not the taxpayer was using a property as their sole or main residence for the purpose of claiming Private Residence Relief on Capital Gains Tax. The Tribunal also helpfully made a number of suggestions of the kind of documents that could be provided to support a claim for Private Residence Relief (see bottom of article).
- In 2003 the taxpayer purchased a flat. She retained ownership of the flat throughout subsequent events and currently resides there. It is the address given on her application to the Tribunal.
- In 2004 the taxpayer purchased Property A for £138,000 plus fee and stamp duty. During her period of ownership she spent over £80,000 on improvements to the property, which she sold in 2005 for £290,000 (a period of ownership of 11 months).
- In 2005 the taxpayer purchased Property B for £165,000 plus fee and stamp duty. She spent £62,000 on improvements, which she sold in 2006 for £385,000 (a period of ownership of 17 months).
- Completed tax returns included claims to Private Residence Relief in respect of the gains made on the sales of the two properties and HMRC issued an Enquiry Notice in respect of both returns.
- HMRC issued Closure Notices by which it brought into charge the amount of Capital Gains Tax it believed to be due. This was £16,432 for Property A and £49,448 for Property B.
Although the term “residence” is not defined in the legislation, in Goodwin v Curtis it was held that whether the occupation of a property is sufficient to make a person “resident” was a question of fact and degree and there must be some evidence of permanence, continuity or expectation.
HMRC argued that she was using the flat as her main residence, therefore was unable to claim Private Residence Relief on the disposal of Property A and Property B. Belfast City Council stated that as the taxpayer had not registered to pay domestic rates at either address, the properties in question remained unoccupied throughout the period for which she was claiming Private Residence Relief. Furthermore, suspicions were raised as each property was owned for a short period and sold as soon as the refurbishments were completed and the properties were purchased with the assistance of short-term finance arrangements.
The taxpayer was unable to provide any evidence whatsoever that she lived in the properties other than her oral testimony. She argued that at the time of purchase she had intended to move into both houses, however, due to a change of circumstances she ended up selling the properties and living elsewhere.
The tribunal was ‘troubled’ by the absence of evidence to support the taxpayer’s case and found her argument unsatisfactory, particularly considering that properties undergoing extensive refurbishments are likely to be uninhabitable.
The tribunal held that the taxpayer did not satisfy on the balance of probabilities that she occupied the properties as her sole or main residence, therefore she was not entitled to Private Residence Relief and was liable for the full amount of Capital Gains Tax due.
Evidence to demonstrate residence
The tribunal stressed that whether or not the property is the sole or main residence of the taxpayer is a question of degree and no factors are determinative in its own right. The suggested evidence that would have supported her case are as follows:
i. Letters received when living at properties
ii. Insurance policies
iii. Photographs of herself living in the property
iv. Witness statements from friends and family
v. Television licence documentation
vi. Postal address
vii. Address at which her car was registered
viii. Address that the invoices for the refurbishment works were sent
ix. Register for domestic rates
x. Utility bills
See our December 2014 Tax Update for more recent cases.