[2011] UKFTT 309 (TC)

TC01170

Appeal number TC/2010/05564

Whether the purchase and sale of a property within a short period of time was a trading activity and if not whether the nature of the Appellant’s stay in the property enabled him to  qualify for principal private residence relief- appeal dismissed because during period of ownership Appellant stayed mainly in another property 

FIRST-TIER TRIBUNAL

TAX 

	MR DAVID LOWRIE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: S.M.G.RADFORD (TRIBUNAL JUDGE)
						N.L.COLLARD

Sitting in public at 185 Dyke Road, Brighton BN3 1TL on 23 March 2011

The Appellant in person

Ms H.Thorn for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	This is an appeal against the amendment made by HMRC to the Appellant’s self assessment return for the tax year ended 5 April 2004.
2.	HMRC concluded that the purchase and sale of a property situated at 183 Carden Avenue Brighton (“the Property”) amounted to a taxable trading transaction and increased the tax payable by £12,981.67.
3.	In the alternative HMRC contended that if not a trading transaction the Property did not qualify for Principal Private Residence Relief.
The Legislation
4.	Section 18 of the Income and Corporation Taxes Act 1988 (“ICTA”) states that tax shall be charged under Schedule D in respect of :
	(a)the annual profits or gains arising or accruing—
(i)to any person residing in the United Kingdom from any kind of property whatever, whether situated in the United Kingdom or elsewhere, and
(ii)to any person residing in the United Kingdom from any trade, profession or vocation, whether carried on in the United Kingdom or elsewhere, [and
(iii)to any person, whether a Commonwealth citizen or not, although not resident in the United Kingdom from any property whatever in the United Kingdom or from any trade, profession or vocation exercised within the United Kingdom]
5.	Section 222(1) of the Taxation of Capital Gains Act 1992 (“TCGA”) states that :
This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in—
(a)a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence, or
(b)land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.
6.	Section 223(1) of TCGA states: 
No part of a gain to which section 222 applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual’s only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period.
7.	Section 224 3) TCGA states:
 (3)Section 223 shall not apply in relation to a gain if the acquisition of, or of the interest in, the dwelling-house or the part of a dwelling-house was made wholly or partly for the purpose of realising a gain from the disposal of it, and shall not apply in relation to a gain so far as attributable to any expenditure which was incurred after the beginning of the period of ownership and was incurred wholly or partly for the purpose of realising a gain from the disposal.
Background and facts
8.	The Appellant stated that since graduating in 1983 he had always been employed full time as a software engineer but he stopped working full time in 2000 when he was made redundant and divorced by his wife. He wanted to be available to look after his daughter as his ex-wife worked largely overseas. At the time he was made redundant he had been earning a basic salary of some £120,000 per annum.
9.	In 2003 he started to look for a property which was detached and could be modernised. As an engineer he could “put lots of effort” into a property which could become a family home for himself and his daughter. He found the Property and worked with an architect prior to its purchase. He told the owners that he wished to purchase their property but before doing so he wished to submit the planning application.
10.	He did the specifications himself but because the existing building was not exactly what he wanted he decided that he would put in two units side by side. 183 would remain and 183A would be a new semi-detached build in which he could realise his design ideas.
11.	He was unable to obtain a mortgage because he could not show recent payslips although he went to various sources. NatWest bank however was willing to provide a loan (referred to as a business loan) provided that he could put down a deposit of at least £100,000. The business loan allowed a roll-up of the interest and was flexible so that it could be replaced with another facility at any time. He was confident that if necessary he could take another job once the construction was complete and obtain a normal mortgage. The loan was for £135,000 and the property cost £230,000. The deposit came from the proceeds of the sale of his former family home.
12.	The application for planning permission was submitted on 27 February 2003 and approval was granted on 1 May 2003. His plan was to buy the Property and move in and he then would have two years to decide how to finance the redevelopment of the Property and replace the business loan with a mortgage. The purchase of the Property was completed on 16 May 2003.
13.	He had been very traumatised by the divorce and then his sister fell seriously ill. Her husband was by then living largely in Wales running a restaurant and so he spent most of his time with his sister who lived at 2 College Gardens, Brighton. His sister died on 22 May 2003 with her husband in Wales. Whilst the Appellant was working on the plans for the Property he went back and forward to his sister.
14.	The Appellant stated that he had lived at the Property and produced evidence to show that his household goods were moved from the storage facility to the Property on 2 June 2003.
15.	The Appellant produced a letter from the architect with whom he had worked on the project. The letter stated that she had worked with him on the project and visited him at the Property. The letter also stated that following the death of his sister the Appellant lost heart in the project and eventually decided not to go ahead with it.
16.	The Appellant confirmed that following the death of his sister he took a long time to recover and spent most of his time at his sister’s old home in College Gardens where he felt closest to her and which gave him comfort.
17.	The Property was advertised for auction showing vacant possession in December 2003 and sold on 20 January 2004 for £280,000.
Appellant’s Submissions
18.	The Appellant stated that he had come to the hearing as a matter of principle because HMRC did not accept his explanation for the purchase and subsequent sale of the Property.
19.	He had always intended to live at the Property and intended to create a family home there for himself and his daughter. There was never any intention to commence a trade in property by buying and selling the Property but after his sister died he lost all interest in living there. 
20.	He has subsequently established a property company and worked with his brother-in –law and acted as landlord for properties which they own.
HMRC’s Submissions
21.	Ms Thorn on behalf of HMRC asked whether the Tribunal now accepted that the purchase of the Property was not made with a view to the resale at a profit and hence that the purchase and resale was not an adventure in the nature of a trade. The Tribunal replied in the affirmative and so she confined her oral submissions to the question of whether capital gains tax was due on the sale of the Property.
22.	 She cited the case of Goodwin v Curtis CA [1998] STC 475 in which it was held that:
“the principle is that in order to qualify for the relief a taxpayer must provide evidence that his residence at a property showed some degree of permanence, some degree of continuity or some expectation of continuity.”
23.	She submitted that capital gains tax was due on the profit made on the sale of the Property because the Appellant had not been able to prove that there was any degree of permanence, continuity or expectation of continuity connected to his stay at the Property.
Findings
24.	The Tribunal found the Appellant’s evidence straightforward and sincere and have sympathy with the tragic events of 2003.
25.	We find that the Appellant never had any intention of purchasing the Property to make a quick sale with resultant profit.
26.	However the death of his sister had a profound effect on him and by his own admission he started spending his time at what had been her home at 2 College Gardens which was where he felt closest to his sister. He no longer had any enthusiasm for his project at the Property. This was confirmed by his architect who stated that after the death of his sister the Appellant decided not to go ahead with his plans for the Property.
27.	 In correspondence the Appellant stated that the entire interior of the house had been gutted back to the walls in July 2003 and we found that the gas bills for the Property were minimal.
28.	We find that after the death of his sister the Appellant’s stay at the Property lacked the degree of permanence for it to qualify as his principal private residence as by his own admission he spent most of his time at 2 College Gardens. As a result of this we find that the Property was not his only or main residence as was necessary for its subsequent sale to fall within Section 222 (1) TCGA and to attract principal private residence relief.
Decision
29.	The appeal is dismissed on the basis that whilst there was no trading activity with the purchase and sale of the Property, there arose a liability to capital gains tax on its sale without the benefit of principal private residence relief.
30.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE
RELEASE DATE: 10 MAY 2011