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Capital Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP

Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, comments on the ‘reasonable enjoyment’ condition regarding private residence relief, and on an error by HMRC regarding negligible value claims.

Garden or Grounds: Permitted Area Required for the ‘Reasonable Enjoyment of the Dwelling-house’

Context

I reported at CTR Issue 11 Summer 2005 Item 6 a couple of (arguably unjustified) concessions by HMRC from the strict objective test of what area larger than 0.5 of a hectare is required for the reasonable enjoyment of the dwelling-house, as laid down by TCGA 1992 s 222(3).

Personal circumstances of the occupier: subjective approach extended

It seems not to be known when paras CG64826-62 were added to the Capital Gains Manual (the June CTR Item having referred to paras 64832 – 34). The preceding paras suggest that the boundaries of the relieved garden or grounds may be shifted around between sales [which could be advantageous to the taxpayer] but, more mischievously, that the extent to which the house is used should be regarded with a view to determining the relieved boundaries of the garden.

So, if the husband died and the widow became bedridden, HMRC might argue that virtually no garden would be required for her reasonable enjoyment of the house [except, perhaps, such as could be viewed from her bedroom window? But what about the growing of flowers to adorn the bedroom…?]. Further, even within the basic 0.5 hectare permitted area, would those garden or grounds be occupied and enjoyed? On this footing, when her financial necessity forced the sale of, first, plots from the garden and, eventually, the house, the second concession mentioned in Issue 11 of CTR would not apply. Might the revised policy have something to do with the fact that the plots have not as yet been subjected to the planned Barker levy?

(Point made to me by Jeremy De Souza of White & Bowker on 17.6.05)

Comment

This sort of reported approach by HMRC cannot be right in principle, but it serves as a timely warning of possible thinking within HMRC’s hallowed portals. Except in the most straightforward cases, consider carefully in advance of any disposal (especially, though not exclusively, of part of garden or grounds) how the most tax-efficient analysis is best supported and presented.

Negligible Value Claims: Quotas Other than Milk Quota

Context

The Special Edition of the Tax Bulletin issued in June 2005 on the single payment scheme stated:

‘Quotas that ceased before 1 January 2005 are now worthless and negligible value claims may be made. A negligible value claim may result in an allowable loss available to set against chargeable gains of the same or a later tax year where the quota has been acquired on purchase.’ (See CTR Issue 11 Summer 2005 Item 23).

HMRC retraction of inaccurate statement

HMRC apologise that the statement is incorrect. A negligible value claim cannot be made at a time when the asset in question has ceased to exist. However, quotas which were abolished before 1 January 2005 will be treated as having been disposed of on the date on which they ceased to exist. Capital losses may arise in respect of quota acquired other than for nil consideration which were held as non-wasting assets. The normal claims procedure applies to allowable losses arising on the extinction of quota.
(HMRC Tax Bulletin Issue 78 August 2005 p1229)

Comment

It is always nice when HMRC, with all the resources at their disposal, turn out to be no more infallible than the rest of us! But this comes as a timely reminder that, for a negligible value claim to be made, the asset in question must still be in being and in the ownership of the taxpayer.

October 2005

Matthew Hutton MA, CTA (fellow), AIIT, TEP

More Information

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php.

About the Author

Matthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.