When the seller of a property allowed the purchaser to start the groundworks for developing it prior to the exchange of contracts for sale, she would not have expected HM Revenue and Customs (HMRC) to assert that this invalidated a claim to the principal private residence (PPR) exemption for Capital Gains Tax (CGT) purposes.

The case involved a homeowner who had obtained outline planning permission for part of her garden to be developed. She formed a limited company and sold the land to the company. However, it commenced the groundworks by informal agreement with her three months before the contract was completed.

HMRC argued that the commencement of the works constituted a ‘disposal’ for CGT purposes of the land in question, as it was no longer ‘garden or grounds’ and was no longer available to the woman for use as a garden.

After enquiring into her tax return (which contained no tax computation relating to the disposal because she considered that the PPR exemption applied), HMRC raised an assessment to CGT. This was disputed and the argument reached the First-tier Tribunal, which held that the property had not lost its status as a ‘garden’. Since the woman could have reclaimed the land at any point prior to the completion of the contract, there was no permanent change of use and, therefore, no disposal for CGT.


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