HMRC Cracks Down on Home Owners Claiming CGT Relief

HMRC is cracking down on cases where home owners are claiming relief against capital gains tax. 

Two appeals before the First Tier Tax Tribunal demonstrate how HM Revenue & Customs is scrutinising filings by home owners living in properties for a short time. 

In the first case, the taxpayers George and Mary McHugh won a reprieve in claims from HMRC that they had failed to properly declare their CGT liability of more than £22,000 each - while Mr McHugh was penalised an extra £11,780 and Mrs McHugh an additional £11,585. HMRC argued they deliberately misled the tax authority by leaving any CGT gain off their tax returns. 

The McHughs explained extra-statutory concession D49 applied, which allows taxpayers who are delayed in moving into a home for no longer than 24 months due to building works to claim the period as a CGT exemption. 

Any delay longer than 24 months means the concession is not available. 

They built the property intended as their primary home between November 2004 and December 2007, then moved in, selling the property in September 2010. 

The McHughs stated they owed no CGT as the concession applied until December 2007 and private residence relief after that. 

HMRC claimed if the taxpayer had no reasonable excuse for moving for 12 months, then the concession did not apply. 

The tribunal decided that guidance in the HMRC was wrong and misinterpreted the law. 

The penalty assessments were quashed HMRC was ordered to recalculate the gain, reducing the selling price by £18,816 rather than the £9,410 put forward by HMRC. 

In a separate case before the tribunal, an appeal against a CGT assessment from Patricia Lam was rejected.

The tribunal heard Mrs Lam and her husband rented a home in London but bought a property in Barnes Rise that needed updating to move in once building works were completed. 

They stayed during the week, spending the night in sleeping bags but not moving furniture or personal belongings. 

They did change their home address to the property for bank statements, the electoral roll, phone or driving licences. 

Mr Lam also fell ill, and the couple said this changed their intention to move in. 

The tribunal ruled that although no minimum time was applied for private residence relief on the home sale, the case did not show any signs they had made the property their home. 

Their appeal against a CGT assessment and penalties for not declaring the gain on tax returns was denied.