As home improvement shows are becoming increasingly popular on our television screens, it’s no surprise that more homeowners are renovating or redesigning their present homes. One homeowner took a 'grand design' one step too far, with serious tax consequences. The taxpayer was denied capital gains tax principal private residence relief (PPR) when he sold a property built on the site of his main residence which he’d demolished earlier.
This was an unusual and interesting case and seems to be the first which has come to court to discuss whether the two properties need to be considered separately for the purposes of PPR. Not only did HM Revenue & Customs (HMRC) argue that PPR wasn’t available on the gain arising on the ultimate disposal of the 'new' property, it also argued that the taxpayer had acted negligently in not declaring the gain on his return. This resulted in a 50% penalty charge, even though the taxpayer sincerely believed that the property was his principal private residence.
The First-tier Tribunal (FTT) was divided on the question of whether PPR should be available. But the tribunal judge, with his casting vote, found that the natural meaning of the legislation was that the newly built property was not the same as the original – so the nature of residence had to be established separately, which in this case the taxpayer couldn’t do.
With the recent changes to PPR in the Autumn Statement and the increasing challenges by HMRC, homeowners should be aware of the wider tax implications. If you have any questions on whether PPR would be available to you, please do get in touch.
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