Judge Clarifies How To Claim CGT Property Tax Reliefs

Property investors often ask how long they have to live in a home for capital gains tax reliefs to apply – and now the answer has been signalled by tax judges. 

The question arises because property investors can reduce their capital gains tax bills by applying private residence relief and lettings relief if they can prove the home they are selling was their primary residence during their ownership. 

Private residence relief exempts the property from CGT for the time the owner had the main home there plus 18 months and was controversial in the MPs’ expenses scandal when they ‘flipped’ addresses to gain tax reliefs.

Lettings relief is worth a maximum of £40,000 CGT relief if the property the owner is claiming was their home was rented out. Tax law and HM Revenue & Customs (HMRC) refuse to put a time limit on how long someone has to live on the property to call it home. 

Instead a test is applied by tax tribunals that look at the ‘quality’ of occupation, rather than the length of time the property was lived in. 

In the case Richard James Dutton-Forshaw v HMRC [2015] UKFTT 478, the First-Tier Tribunal looked at an appeal by the property owner to allow principle residence relief even though he had only lived in a home for eight weeks. 

Despite arguments by HMRC, the tribunal ruled in Dutton-Forshaw’s favour as he could show he had registered for council tax, requested a local parking permit, and had nowhere else to live at the time. 

The tribunal also pointed out that another case, David Morgan v HMRC [2013] 15 UK FTT 181, also supported Dutton-Forshaw’s arguments – and Morgan had only lived in his home for just over a month. Tribunal judge Robin Vos upheld the appeal and cancelled a CGT bill of almost £40,000.

“Based on the evidence before us, we find that the “nature, quality, length and circumstances” of Dutton-Forshaw’s occupation of Cornwall Gardens did make that occupation qualify as residence." “As Dutton-Forshaw had no other residence during the relevant period, we therefore find that this was Mr Dutton-Forshaw’s only residence for the period from 5 August 2006 to 26 September 2006 and that private residence relief and lettings relief are both available in respect of the gain on the sale of that property.”