Mr Campbell had purchased and then sold four properties in a span of around five years. After making a good amount of profit from the recurrent buying and selling transactions, he coined them 'capital gains'.As he went on to claim private residence relief (PRR) against each gain, he implied that he had no tax to pay.HMRC disagreed with his notion and argued that the profits were capital gains, arguing instead that Campbell was trading as a property developer.
Thereby, any profit he gained, would have been liable to income tax. Thus, PRR could not have been applicable in the first place. HMRC also contended that even if the profits were capital gains, PRR was not applicable in his case as Mr.Campbell had not been residing in the real estate that he purchased.
For HMRC to succeed at the First-tier Tribunal (FTT), it had to present the fact that one or more than one "badges of trade", were applicable in the scenario of Mr.Campbell's perpetual buy-and-sell propaganda with the houses. Some of these "badges of trade" were indeed applicable. However, multiple transactions had occurred showing evidence that C had spent a sum of money towards improving the properties to a notable demeanour. Thereby, the FTT decided that on balance, the money made by Mr.Campbell was not a trading income.
Mr.Campbell had been employed in a full-time job, which had no connection whatsoever with the property. He had also engaged in any property-related transaction anywhere else.We cannot assert whether the FTT's decision was right. However, this is a reminder that where there are doubts, tribunals may usually justify in favour of the taxpayer.Tip: While the existence of one badge of trade can be enough to confirm an activity as trading, it does not automatically do so despite HMRC's assertion. In this regard, it is possible for more than one badge of trade to apply, barring an activity that counts as 'trading'.
Having survived the "trading" bullet, Campbell's demand for PRR was now in an uncomfortable situation. Here, Campbell began to argue, stating that although he had not resided in the properties which he had purchased, PRR could still apply. He claimed that he intended to reside at the properties, however, he could not, as he lived in a job-related accommodation. This is one of the exceptions that allow PRR for periods of absence from your home but the FTT decided the alleged job-related accommodation was Campbell's home.
Several factors indicated this, not least was that in his evidence did Mr.Campbell refer to the 'accommodation' as his home. The property was his parents' home and Campbell was noted to live there to take care of his father who suffered from dementia; contrary to the story he had spun citing work reasons.Mr.Campbell's claim for PRR failed due to the reasons stated above. Furthermore, HMRC had an extendable argument in reserve. The legislation specifically precludes PRR for gains made from properties specifically purchased to make a gain.HMRC was not successful in displaying the fact that purchasing, renovating, and selling property for monetary gain, could be termed ‘trading’.
The FTT also added that the tests for trading activity had not complied.However, HMRC succeeded with its claim stating the fact that PRR was completely inapplicable in this scenario.
