[2013] UKFTT 775 (TC)
TC02426
Appeal number: TC/2012/01118 & TC/2012/00412
CAPITAL
GAINS TAX - Main residence. Election. Whether conclusive if there
is more than one residence – yes. Can HMRC re-open the question and contend
that a residence was not a main residence if an election to that effect has
been made – no.
FIRST-TIER TRIBUNAL
TAX CHAMBER
MRS
P. A. ELLIS
THE ESTATE OF A. R. ELLIS, DECEASED Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE & CUSTOMS Respondents
TRIBUNAL: JUDGE GERAINT
JONES Q. C.
DR C. HILL WILLIAMS D. L.
Sitting in public at 30 Friar Street, Reading on 30 October 2012.
Miss Fiona Ellis for the First
Appellant
Mr R. McLeod for the Second
Appellant
Mr A. Boal for HMRC the
Respondents
© CROWN
COPYRIGHT 2012
DECISION
1. On
01 May 2008 the respondents began an enquiry into the self assessment tax
return of the first appellant, Mrs P. A. Ellis, to check whether a gain made
upon the sale of a property known as 1 Jessamine Cottages, Horton (“the
property”) had been made, declared and duly taxed.
2. The
enquiry into the first appellant's self-assessment return began after a similar
enquiry into the self-assessment tax return of the late Mr A. R. Ellis (“the
deceased”), the first appellant’s (late) husband. The disposal of the property
had been declared by the deceased as if he was the sole owner of that property
whereas, as a matter of property law, it was owned equally between himself and
the first appellant. The self-assessment had proceeded on the basis that no tax
was due upon the disposal of that property because it had been elected as the
"main residence" for the purpose of section 222 of the Capital Gains
Taxes Act 1992.
3. The
relevant chronology is that the property was purchased on 31 March 1999 for
£100,000 from the vendor, A R Ellis Limited. The property was later sold on 13
April 2005 for £187,500. The disposal was declared in the deceased's self
assessment return for the fiscal year ended 5 April 2006 as if he was a sole
owner. It was not mentioned in the first appellant's tax return for that fiscal
year. It was agreed at the appeal hearing before us that nothing turns on that
point.
4. After
the property had been purchased in March 1999 it was continually let until 31
August 2004. The first appellant says that she and her late husband then
decided to use the property as a residence from on 01 October 2004. On 29
October 2004 an election under section 222(5) CGTA 1992 was sent to the
respondents and duly acknowledged by a letter dated 22 November 2004. At the
appeal hearing before us, Mr Boal informed us that the acknowledgement is
nothing more than an acknowledgement of the receipt of an election and does not
amount to an admission that an identified property is a residence occupied or
used by the taxpayer, within the meaning of section 222. He explained, and we
accept, that that is an issue to be decided later if the respondents challenge
the assertion that any given property was a residence occupied or used by a
taxpayer.
5. The
result of the enquiries commenced by the respondents was that additional
assessments were raised, being £9478.80 against the first appellant and
£9794.80 against the second appellant.
6. Each
appellant has appealed against the assessment on the basis that the property
was being used as a residence and that the election made and acknowledged, is
conclusive as to which of more than one residence amounted to the taxpayers’ main
residence.
7. In
the respondents’ Statement of Case it is said that the point at issue is “Whether
the appellant's occupation of a property in the period October 2004 to March
2005 deems that property to be a "residence" for the purposes of a
claim for principal private residence relief.” It thus seemed that there
was to be a factual issue for the Tribunal to decide, that is, whether the
property was or was not a property occupied and/or used as a
residence by the taxpayers. Indeed, the bundle produced by the respondents
contains several transcripts of decided cases, all of which deal with the issue
of whether an appellant was or was not "resident" at a particular
property within the meaning of the applicable legislation. We should emphasise
that none of the authorities contained in the bundle deals with the issue of
whether a property can or cannot be described as a person's main residence
except for the decision in Frost v HMRC [1980] 55 TC 10. The
issue in that case was whether a publican who resided in Essex (in or over the
public house) used a property that he owned in Wales as his only or main
residence for the purpose of claiming mortgage interest relief thereon. The
General Commissioners decided that he did and the Crown’s appeal was dismissed
by the High Court.
8. By
the time that this appeal came on for hearing the issue seemed to have changed.
In a document headed "Speaking Notes" produced by Mr Boal, it was
said that the "Point in Dispute" was as follows “Whether the
occupation of 1 Jessamine Cottage by the appellant's in the 6 1/2 month period
from October 2004 to 13 April 2005 was sufficient to deem the property as a
"main residence" for the purpose of principal private residence
relief.”
9. After
evidence had been taken from Miss Ellis and the written material in the bundle
had been considered, Mrs Hill Williams asked Mr Boal whether the respondents
accepted that the property had been used as a residence by the
taxpayers but that the case being advanced was that it could not properly be
described as their "main" residence. Mr Boal stated
that the respondents accepted that the property was a residence
used by the taxpayers but that the nature and extent of the use made of the
property did not permit of the conclusion that it was their main
residence.
10. Thus it became
clear that the respondents were not arguing that the property was not properly
to be viewed as a residence used by the taxpayers; but simply that even though
it was a residence it was not, as a matter of fact and degree, their main
residence.
11. Mr Boal argued
that whether a residence was or was not a person's main residence was a matter
of fact and degree when comparing the various residences used by any given
person against each other. The appellants had another residence, a detached
four-bedroom house, near Slough. Mr Boal argued that we should look at the
comparative amount of time spent at each of the two residences, the nature and
quality of the use made of each residence and the fact that the house in Slough
was also used by the taxpayers when two of their granddaughters resided with
them, often for significant period of time, for family reasons that are not
relevant to our decision.
12. We pointed out
to Mr Boal that once the respondents conceded that the property was a residence
and it was accepted or admitted that the taxpayers had two residences, the
effect of section 222(5) CGTA was to allow the taxpayers to make an election
which was determinative of the issue as to which of the two residences was, for
capital gains tax purposes, his/her main residence.
13. Section 222
Capital Games Taxes Act 1992 so far as material, provides as follows :
(1) 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.
(2) In this section “the permitted area”
means, subject to subsections (3) and (4) below, an area (inclusive of the site
of the dwelling-house) of 0.5 of a hectare.
(3) ............................................................
(4) ............................................................
(5) So far as it is necessary for the
purposes of this section to determine which of 2 or more residences is an
individual’s main residence for any period—
(a) the individual may conclude that
question by notice to the inspector given within 2 years from the beginning of
that period but subject to a right to vary that notice by a further notice to
the inspector as respects any period beginning not earlier than 2 years before
the giving of the further notice,
(b) subject to paragraph (a) above, the
question shall be concluded by the determination of the inspector, which may be
as respects the whole or specified parts of the period of ownership in
question,
and notice of any determination of the
inspector under paragraph (b) above shall be given to the individual who may
appeal to the General Commissioners or the Special Commissioners against that
determination within 30 days of service of the notice.
14. The
important point to note about the construction of section 222 CGTA is that once
it is established (or accepted) that a taxpayer has more than one property that
can properly be called his residence, it is the taxpayer who can make an
election as to which of two or more residences is to be his main residence. It
is equally important to note that subsection 5 of section 222 specifically
provides that “the individual may conclude that question by notice to the
inspector ......... “ and that this is a case in which such notice was
given.
15. Thus
the section envisages that a taxpayer may make an election; but does not
have to do so. It then provides that if a taxpayer does decide to make an
election the effect of that election is to conclude the issue as to which of
two (or more) residences is his main residence, so far as capital gains tax
matters are concerned. In other words, the respondents can challenge the
assertion made by a taxpayer that a particular property is a residence used/occupied
by him, but once it is proved or accepted that a particular property is a
residence used/occupied by the taxpayer, the respondents cannot argue that as a
matter of fact and degree that residence is not the taxpayer’s main residence
if an election has been made in favour of that property under section 222(5).
That is because upon its true and proper construction the statute specifically
provides that the question of which property is the main residence is
conclusively dealt with by the election made under subsection 5.
16. It
follows that, in our judgment, given that the respondents concede that the
property was a residence used by the taxpayers, the appeals must succeed
because an election was made. The respondents cannot go behind the election
notwithstanding Mr Boal’s contention that it was open to the respondents to
challenge whether or not, as a matter of fact and degree, the property could
properly be described as the taxpayers’ main residence. If Mr Boal was correct
in his submission, it would mean that an election made under section 222 would
not be conclusive as provided by section 222(5). In our judgment his submission
was contrary to the plain meaning and effect of that statutory provision.
17. 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.
Decision.
Each appellant's appeal is allowed and each assessment is
discharged.
GERAINT JONES Q.
C.
TRIBUNAL JUDGE
RELEASE DATE: 3 December 2012
