PPR Relief following gift from spouse

[hombre contento]

My wife bought her flat in 2004 and lived in it as her only property from then until our marriage some time later, at which point she moved into my house and we let out the property. Just before it was sold, we were advised to arrange for her to gift 50% of the property to me in order to achieve an additional Lettings Relief from CGT and we did this shortly before the flat was sold. We were assured by my tax advisor that this would not affect the PPR relief on either this property or my own house due to the application of s222(7)A & B. This clause states that, where an only or main residence is gifted, the other's period of ownership is deemed to start at the original date of purchase. However, HMRC are now disputing the application of PPR on the basis of Note CG64950 which states that, in order for PPR Relief to apply, the property needs to be the main residence at the date of the transfer, which in this case it was not. Effectively, they are saying that my period of ownership is backdated to when my wife bought the flat but NOT my entitlement to PPR. This is the worst of all worlds and makes absolutely no sense as it denies a relief to me that would otherwise have been due to my wife and gifts between spouses I had always understood were tax neutral. I would have thought the better reading would be that either BOTH ownership and PPR are deemed to be backdated or NEITHER are.
Does anyone have any experience of this issue or have any guidance they can offer? Any thoughts much appreciated.

[maths]

HMRC are correct. At the time of any transfer of an interest in the property s222(7)(a) refers to "if one disposes ........which IS their only or main residence....."
ie the property must be the sole/main residence at the time of effecting the transfer.

I also doubt in any event that lettings relief would have been available as YOU never "let" the property.