Mr. Gibson bought a house and moved into it, claiming that he intended to extend the existing house for future use as his matrimonial home. Owing to the cost of alterations of the house, he instead ended up demolishing it and rebuilding from scratch. However, for financial reasons he then had to sell the property. Prior to sale, although he ‘camped’ in the property with basic furniture for four or five months, the ‘quality’ of occupation of the house was not sufficient to make it his sole or main residence - it being accepted that he no longer intended to make the house his permanent residence when it was complete. This was on the basis that there was no degree of permanence or expectation of continuity of occupation that amounted to it being his residence.
The tribunal also heard that a significant proportion of the financing was provided by a friend, and that Mr Gibson paid him a £50,000 fee. That, plus the fact that the two had been involved together on property acquisitions previously, may also have coloured the tribunal’s views.
PPR relief is not given by reference to a property as a whole, i.e. the land and building(s) on it but specifically by reference to the“dwelling” that is sold. The dwelling that Mr. Gibson occupied as his PPR was the old house but that dwelling had ceased to exist by the time he sold up. The new house was also a dwelling but because he had never occupied that dwelling, PPR relief was not available for any of the gain.
Repair, extend or replace?
Mr. Gibson may have been a victim of his own common sense because the reason why he got no CGT relief was that he had taken the sensible, more economical step of demolishing and replacing the old house.
HMRC accepted that if he had made repairs or extended the property, so that the house he ended up with could be said to be the same dwelling as he had started with (even if unrecognisable), he would have obtained PPR relief.
When is a residence not a residence?
The case highlights that it is very much the quality of occupation of a property which determines the availability of PPR.
It follows closely on two other PPR cases, Moore and Morgan where the owners lived in their properties only for short times.
Mr. Morgan bought and occupied a house intending it to behis future matrimonial home but ceased to occupy it after his fiancée broke off the engagement. He then let out the property for a long time before eventually selling it.
Mr. Moore moved into a property that he already owned and had previously rented out. At that point he did not know whether he would want to make that property his permanent home but soon decided that it would not suit his future needs, so he sold it.
The difference between the two cases was that:
- Mr. Morgan did occupy his house with the intention that it would be his home;
- Mr. Moore never formed the intention of making that house his permanent home.
- That difference in intention was crucial: Mr Morgan was able to claim PPR relief but Mr. Moore was not.
What ought to be a straight forward relief for home-owners contains complexities that can catch out the uninformed and end up costing additional tax.