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    Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to - respond / call you back - to discuss your enquiry and you will not be charged for this time.

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    Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to - respond / call you back - to discuss your enquiry and you will not be charged for this time.

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  • Principal Private Residence Relief

    25 January 2022

    Olivia Pryer

    Quality over quantity when it comes to Principal Private Residence (PPR)

    Principal Private Residence (PPR) is an attractive tax relief, particularly for those who have benefitted from huge market growth on the properties they own.

    In a nutshell, the main condition being if the person has occupied the property at some point during the period of ownership, the relief provides the ability to exempt all or part of the gain arising on these properties, resulting in large savings for the taxpayer. 

    Occupation can mean actually ‘living’ in the property for a period of time, but can also be ‘deemed occupation’ whereby certain periods of absence still qualify. 

    However, it is very important to note that a period of absence can only be treated as a period of deemed occupation if it was both preceded and followed by a period of actual, physical occupation. The only exception to this is for the last 9 months of ownership, provided once lived in the property at some point prior. This was previously changed from 18 months confirmed in the Finance Bill 2019/20. 

    Quality of occupation

    Lately, we are seeing more challenges from HMRC against, what they see as speculative claims for this relief. Too often, taxpayers believe that simply ‘living’ in a property is enough. However, certain conditions should be satisfied. Predominately, where disputed by HMRC the taxpayer will be required to show that the quality of their occupation was sufficient for it to be considered their main residence.  

    In Samsom v Paey (1976) this was summarised – “to exempt from liability to capital gains tax the proceeds of sale of a person’s home”.

    This quote emphasises the point that the test of residence is one of quality over quantity through the use of the word ‘home’ rather than ‘residence’. 

    So how do Tribunals assess the quality of occupation? 

    Strictly speaking, there is no definitive answer. However, there are certain factors that must be considered in conjunction with supporting evidence;

    • Intention: There must have been an intention to occupy the property as your home;
    • Address of record: Is the property used as the address of record for various bills and government bodies e.g. for bank statements, utility bills, voting register, council tax, car registration etc;
    • Length of occupation: long and continuous occupation of the property is helpful but not completely essential. However, occasional, and ad hoc visits to the property is likely to point to this not being occupied as a residence, so a longer period of occupation means a stronger case.
    • Earlier conversations with HMRC: if one has said that they had not made up their mind on whether a new property or another property was their main residence, then the Tribunal is likely to use that as evidence that it is not occupied as a residence.

    Here is a list of factors that may either point towards a period of occupation or a period of non-occupation:

    Advantageous factors

    • Income not generated from property sales – showing your income is entirely unrelated to the proceeds received on the disposal of properties. 
    • No council tax discount – you are not receiving any ‘second home’ or ‘empty home’ discount from council tax in respect of the property.
    • Family live with you at the property – family such as a partner reside with you at the property rather than at another property of yours.
    • Utility services – All of the utility services are connected and the usage of these services – is evidenced by your bills.
    • Marketing of the property – it was occupied as a main residence before it was put on the market with estate agents. 

    Disadvantageous factors 

    • Income from property sales – if the majority of income is from selling properties, then this might point towards the property not being occupied as the main residence.
    • Postal address – if an alternative address is used with HMRC, driving license, utility bills and banks then this won’t help the case.
    • Council tax discount claimed – A Tribunal is likely to be persuaded that the property was not occupied as a main residence by HMRC if one has applied for an ‘empty home’ discount
    • Utility services – Where either the mains are not fully connected, or their usage is minimal.
    • Marketing of the property – Where a property is put on the market before moving into the property or before an intention to live in as the residence, then this may be indicative of the property not being a residence.

    If you’re unsure about your clients’ residential circumstances and want to find out if your client is eligible for PPR Relief, please call us on 0161 711 1320 or email us at enquiries@etctax.co.uk to speak to one of our specialist tax advisers.