The First Tier Tribunal (FTT) had to assess if Private Residence Relief (PRR) began when a couple moved into their house or when they bought the land on which it was constructed.
What decision did FTT take? A real case.
In the month of October 2010, Mr and Mrs Lee bought a real estate property, after which they soon had it destroyed, as they never resided there.
Thereafter, they built a new house on that very land, which was made in March 2013. They began to reside in the house till they sold it off in May 2014. In this manner, they made a capital gain of over £550,000.
The Case Details
The couple alleged a Private Residence Relief (PRR) on the capital gain which they made from the sale of their houses. This meant that there was no due tax on them. HMRC dismissed a section of the claim stating that as the couple had owned the asset from October 2010, while they resided in the house for only 15 months, PRR applies only to 15/43rds of the gain. HMRC thus rectified the couple's tax returns taking this fact into account. Thereby, the couple then appealed to the First-tier Tribunal, which, strikingly, ruled in favour of them!
However, this judgement is solely at the FTT level. Please note that it should not become an example.Although, keep in mind that PRR does apply to profits incurred on residences.
However, as there exists no distinct definition of the term 'dwelling' in law, FTT examined the case and concluded that it referred to the building only. Because a building cannot be considered a separate entity from the land it is built upon, PRR must apply to the building and the land together. Thereby, FTT gave a judgement in favour of the taxpayer.
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