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FTT Finds For Taxpayer In PPR Case
Thursday 29th October 2020
The FTT has recently found for the taxpayer in a case involving principal private residence relief.
In Phillips v HMRC [2020 TC 07859], the appellants purchased a property in Bentley Heath, near Solihull in 1997. Together with the gardens the property extended to 0.94 of a hectare. They sold the property to a developer in 2014.
As the appellants considered that the entire gain qualified for Main Residence Relief / Principal Private Residence Relief [PPR], they did not report the gain on their tax returns.
HMRC found out about the disposal from stamp duty land tax records in March 2017 and, in their view, the property was not of a size and character which required gardens/grounds of more than the normal statutory maximum of 0.5 of a hectare.
The Appellants were not able to persuade HMRC to the contrary and, in October 2018, HMRC issued discovery assessments to each of the Appellants for £162,820 representing capital gains tax on the part of the purchase price attributable to the balance of 0.44 of a hectare.
The Appellants appealed against those assessments on the basis that the whole of the area of 0.94 of a hectare was, having regard to the size and character of the property, required for the reasonable enjoyment of the property and therefore forms part of the “permitted area” to which PPR relief applies.
PPR relief applies to a gain accruing to an individual on the disposal of a dwelling-house which is or has been their main residence together with any land which they have for their own occupation and enjoyment with that residence as its garden or grounds up to the permitted area (s.222(1) TCGA 1992). The permitted area automatically includes an area, inclusive of the site of the house, of 0.5 of a hectare (s.222(2).
The key provision in relation to the appeal is s.222(3) which provides that ‘where the area required for the reasonable enjoyment of the dwelling-house ….as a residence, having regard to the size and character of the dwelling-house is larger than 0.5 of a hectare, that larger area shall be the permitted area.” The test as to whether an area larger than 0.5 of a hectare is required for the reasonable enjoyment of the property is an objective test.
The FTT carefully weighed up all of the relevant evidence and held that the whole of the 0.94 of a hectare comprising the property disposed of was required for the reasonable enjoyment of the dwelling-house and so qualified for PPR relief in accordance with s.222(3).
The FTT noted that it was important to bear in mind that the question as to the area of land which is required for the reasonable enjoyment of a dwelling-house must be approached having regard to the size and character of the dwelling-house in question.
If you would like more detail on the decision, please contact Keith Rushen on 0207 486 2378.