[2011] UKFTT 309 (TC)
TC01170
Appeal number
TC/2010/05564
Whether
the purchase and sale of a property within a short period of time was a trading
activity and if not whether the nature of the Appellant’s stay in the property
enabled him to qualify for principal private residence relief- appeal
dismissed because during period of ownership Appellant stayed mainly in another
property
FIRST-TIER TRIBUNAL
TAX
MR
DAVID LOWRIE Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
S.M.G.RADFORD (TRIBUNAL JUDGE)
N.L.COLLARD
Sitting in public at 185 Dyke Road, Brighton BN3 1TL on 23 March 2011
The Appellant in person
Ms H.Thorn for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against the amendment made by HMRC to the Appellant’s self
assessment return for the tax year ended 5 April 2004.
2. HMRC
concluded that the purchase and sale of a property situated at 183 Carden Avenue Brighton (“the Property”) amounted to a taxable trading transaction and
increased the tax payable by £12,981.67.
3. In
the alternative HMRC contended that if not a trading transaction the Property
did not qualify for Principal Private Residence Relief.
The Legislation
4. Section
18 of the Income and Corporation Taxes Act 1988 (“ICTA”) states that tax shall
be charged under Schedule D in respect of :
(a)the
annual profits or gains arising or accruing—
(i)to any person residing in the United Kingdom from any kind of
property whatever, whether situated in the United Kingdom or elsewhere, and
(ii)to any person residing in the United Kingdom from any trade,
profession or vocation, whether carried on in the United Kingdom or elsewhere, [and
(iii)to any person, whether a Commonwealth citizen or not, although not
resident in the United Kingdom from any property whatever in the United Kingdom or from any trade, profession or vocation exercised within the United Kingdom]
5. Section
222(1) of the Taxation of Capital Gains Act 1992 (“TCGA”) states that :
This section
applies to a gain accruing to an individual so far as attributable to the
disposal of, or of an interest in—
(a)a
dwelling-house or part of a dwelling-house which is, or has at any time in his
period of ownership been, his only or main residence, or
(b)land which
he has for his own occupation and enjoyment with that residence as its garden
or grounds up to the permitted area.
6. Section
223(1) of TCGA states:
No part of a
gain to which section 222 applies shall be a chargeable gain if the
dwelling-house or part of a dwelling-house has been the individual’s only or
main residence throughout the period of ownership, or throughout the period of
ownership except for all or any part of the last 36 months of that period.
7. Section
224 3) TCGA states:
(3)Section
223 shall not apply in relation to a gain if the acquisition of, or of the
interest in, the dwelling-house or the part of a dwelling-house was made wholly
or partly for the purpose of realising a gain from the disposal of it, and
shall not apply in relation to a gain so far as attributable to any expenditure
which was incurred after the beginning of the period of ownership and was
incurred wholly or partly for the purpose of realising a gain from the
disposal.
Background and facts
8. The
Appellant stated that since graduating in 1983 he had always been employed full
time as a software engineer but he stopped working full time in 2000 when he was
made redundant and divorced by his wife. He wanted to be available to look
after his daughter as his ex-wife worked largely overseas. At the time he was
made redundant he had been earning a basic salary of some £120,000 per annum.
9. In
2003 he started to look for a property which was detached and could be
modernised. As an engineer he could “put lots of effort” into a property which
could become a family home for himself and his daughter. He found the Property
and worked with an architect prior to its purchase. He told the owners that he
wished to purchase their property but before doing so he wished to submit the planning
application.
10. He did the
specifications himself but because the existing building was not exactly what
he wanted he decided that he would put in two units side by side. 183 would
remain and 183A would be a new semi-detached build in which he could realise
his design ideas.
11. He was unable to
obtain a mortgage because he could not show recent payslips although he went to
various sources. NatWest bank however was willing to provide a loan (referred
to as a business loan) provided that he could put down a deposit of at least
£100,000. The business loan allowed a roll-up of the interest and was flexible
so that it could be replaced with another facility at any time. He was
confident that if necessary he could take another job once the construction was
complete and obtain a normal mortgage. The loan was for £135,000 and the
property cost £230,000. The deposit came from the proceeds of the sale of his
former family home.
12. The application
for planning permission was submitted on 27 February 2003 and approval was granted on 1 May 2003. His plan was to buy the Property and move in and he
then would have two years to decide how to finance the redevelopment of the Property
and replace the business loan with a mortgage. The purchase of the Property was
completed on 16 May 2003.
13. He had been very
traumatised by the divorce and then his sister fell seriously ill. Her husband
was by then living largely in Wales running a restaurant and so he spent most
of his time with his sister who lived at 2 College Gardens, Brighton. His
sister died on 22 May 2003 with her husband in Wales. Whilst the Appellant was
working on the plans for the Property he went back and forward to his sister.
14. The Appellant
stated that he had lived at the Property and produced evidence to show that his
household goods were moved from the storage facility to the Property on 2 June 2003.
15. The Appellant
produced a letter from the architect with whom he had worked on the project.
The letter stated that she had worked with him on the project and visited him
at the Property. The letter also stated that following the death of his sister
the Appellant lost heart in the project and eventually decided not to go ahead
with it.
16. The Appellant
confirmed that following the death of his sister he took a long time to recover
and spent most of his time at his sister’s old home in College Gardens where he felt closest to her and which gave him comfort.
17. The Property was
advertised for auction showing vacant possession in December 2003 and sold on 20 January 2004 for £280,000.
Appellant’s Submissions
18. The Appellant
stated that he had come to the hearing as a matter of principle because HMRC
did not accept his explanation for the purchase and subsequent sale of the
Property.
19. He had always
intended to live at the Property and intended to create a family home there for
himself and his daughter. There was never any intention to commence a trade in
property by buying and selling the Property but after his sister died he lost all
interest in living there.
20. He has subsequently
established a property company and worked with his brother-in –law and acted as
landlord for properties which they own.
HMRC’s Submissions
21. Ms Thorn on
behalf of HMRC asked whether the Tribunal now accepted that the purchase of the
Property was not made with a view to the resale at a profit and hence that the
purchase and resale was not an adventure in the nature of a trade. The Tribunal
replied in the affirmative and so she confined her oral submissions to the
question of whether capital gains tax was due on the sale of the Property.
22. She cited the
case of Goodwin v Curtis CA [1998] STC 475 in which it was held that:
“the
principle is that in order to qualify for the relief a taxpayer must provide
evidence that his residence at a property showed some degree of permanence,
some degree of continuity or some expectation of continuity.”
23. She submitted
that capital gains tax was due on the profit made on the sale of the Property because the Appellant had not been able to
prove that there was any degree of permanence, continuity or expectation of
continuity connected to his stay at the Property.
Findings
24. The Tribunal
found the Appellant’s evidence straightforward and sincere and have sympathy
with the tragic events of 2003.
25. We find that the
Appellant never had any intention of purchasing the Property to make a quick
sale with resultant profit.
26. However the
death of his sister had a profound effect on him and by his own admission he
started spending his time at what had been her home at 2 College Gardens which was where he felt closest to his sister. He no longer had any enthusiasm for his
project at the Property. This was confirmed by his architect who stated that
after the death of his sister the Appellant decided not to go ahead with his
plans for the Property.
27. In
correspondence the Appellant stated that the entire interior of the house had
been gutted back to the walls in July 2003 and we found that the gas bills for
the Property were minimal.
28. We find that after
the death of his sister the Appellant’s stay at the Property lacked the degree
of permanence for it to qualify as his principal private residence as by his
own admission he spent most of his time at 2 College Gardens. As a result of
this we find that the Property was not his only or main residence as was
necessary for its subsequent sale to fall within Section 222 (1) TCGA and to attract
principal private residence relief.
Decision
29. The appeal is
dismissed on the basis that whilst there was no trading activity with the
purchase and sale of the Property, there arose a liability to capital gains tax
on its sale without the benefit of principal private residence relief.
30. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
TRIBUNAL JUDGE
RELEASE DATE: 10 MAY 2011
