Enter Your E-mail

Matthew Hutton MA, CTA (fellow), AIIT, TEP considers the effectiveness of a capital gains tax planning scenario involving a second residence.

Matthew Hutton

Context - lettings relief

Provided that at some time during the period of ownership, a particular property has been the only or main residence (by fact or election), the gain attributable to a period of letting is relieved, up to a limit, by TCGA 1992, s 223(4).  The amount relieved is the lower of the amount protected by owner occupation relief and £40,000.  Interestingly, the lettings relief is given to each of husband and wife – provided that at the time of the letting he/she had an interest in the property

The 'last 36 months' rule

The ‘magic’ of the last 36 months rule in s 223(2) is of course that the gain attributable to the last 36 months of ownership is exempt, provided that at some time during the period of ownership the owner had occupied the property as his/her only or main residence. 

Consider this scenario.  Wife has for some years owned a London flat which is commercially let.  There is a significant gain.  The flat is to be given to her daughter when she starts working in London in 2008.  Would it be open to the wife to start living in the property, electing in favour of the flat away from the country residence, to establish owner occupation with a view to:

(a) getting the benefit of the last 36 months; and

(b) getting a measure of relief for the letting (as it doesn’t matter for purposes of s 223(4) whether there is owner occupation before the letting – a requirement of course for the periods of absence rules)?

The problem: establishing residence

The difficulty of course is that it has been well-established – emphasised by Goodwin v Curtis -  that the test is qualitative rather than quantitative: ‘temporary occupation at an address does not make a man resident there.  The question is whether the occupation is sufficient to make him resident is one of fact and degree’.

HMRC's view

While it is well known that in the Capital Gains Manual HMRC have an example of varying an election for a period of just one week, that does rather depend on both properties already being a residence of the taxpayer.  It is also well known that (rightly or wrongly) HMRC consider that once a property has been put on the market any period of occupation thereafter cannot be taken into account for purposes of the relief.  They might take a similar view where the disposal is to take place by way of gift rather than sale.

About Monthly Tax Review (MTR)

MTR is a 90 minute monthly training course, held in London, Ipswich and Norwich – as well as a reference work.  Each Issue records the most significant tax developments over a wide range of subjects (see below) during the previous month, containing 30 to 40 items.  The aim is not necessarily to take the place of the journals, but rather to provide an easily digestible summary of them and, through the six-monthly Indexes, to build up, over the years, a useful reference work. 

Who should come to MTR? Does it attract CPD?

MTR is designed not primarily for the person who spends 100% of his/her time on tax, but rather for the practitioner (whether private client or company/commercial) for whom tax issues form part of his/her practice.  Attendance at MTR qualifies for 1.5 CPD hours for members of the Law Society, for 1.5 CPD points for accountants (if MTR is considered relevant to the delegate’s practice) and (subject to the individual’s self-certification) should also count towards training requirements for the CIOT.  For STEP purposes, MTR qualifies for CPD in principle, on the grounds that at least 50% of the content is trust and estate related.  
 
How is MTR circulated?

The Notes are emailed to each delegate in the week before the presentations (and thus can easily be circulated around the office), with a follow-up page or two of practical points arising during the various sessions (whether in London, Ipswich or Norwich).

How do I find out more?

For further details, and for those whose firms unable to make the monthly seminars but wishing to order MTR as 'Notes Only' (at £180 per annum for the 12 issues, invoiced six-monthly in advance), visit http://www.taxationweb.co.uk/taxevents/monthly_tax_review.php