CGT - Replacement PPR Dwelling

[Oliver]

My Fathers property was bought (at market value) some 15 years ago but suffered significant structural defects. He has recently been partially compensated by the insurance company after years of fighting. He would like to completely rebuild this house but would obviously like to avoid CGT as it is his PPR and always has been. He has for many years wanted to move to the countryside but has not been able to secure the true value of his home as a result. If he were to demolish and replace his PPR would he have to live in the new building for a further year to secure CGT exemption? Also if he were to selfbuild would there be any VAT issues when he claims back the tax at the end?
Your comments would be appreciated in rectifying this long term burden. Thankyou

[Oliver]

I have discovered that there is no legislation that determines how long you must live in a new build after completion to satisfy the tax man that it is you private residence and not a development. In this case my father has owned the house for over 15 years. I consider the new build his PPR and not a business. His old house to be demolished would carry over 3 year exemption anyway?
Also a VAT claim is only valid if you are to live in the property after completion - but your VAT reclaim will be within 3 minths of completion anyway?

If you can advise me otherwise I would be grateful.

[Capital Taxes Editor]

There are a number of points to cover here:-
Has your father lived in the defective house as his PPR all of the 15 years? If so then no CGT will be due on any sale. If he demolishes the house, moves elsewhere and then sells the land then some CGT may be due as he is not selling his PPR (it is no longer there!)

For a house to be designated a PPR you should preferably live in the house for a period of time. The issue of whether a particular dwelling-house is a PPR is determined, in the Revenue’s view, on the basis of quality, rather than length, of occupation (Revenue interpretation, Tax Bulletin, August 1994, p.148–151). That view has had some support from decisions of the courts. Millett J said in Moore v Thompson [1986] BTC 172 at p. 179 that even occasional and short residence in a place can make it a residence, but the question is one of fact and degree.

If you do not move into a new house immediately the Revenue will, by concession, allow you to treat any non occupation in the first 12 months to be covered by the PPR owner occupation exemption in certain circumstances – e.g if you are having the house built. This period may be extended to up to two years if the delay was outside of the individual's control. So if he demolishes the house, rebuilds it within 12 months,lives in it as his PPR and then sells there will be no CGT due as both houses are or have been his PPR.

Provided that the house has at some time been your fathers only or main residence with no other residence qualifying the last 3 years are always exempt.