When a woman and her husband separated and were subsequently reconciled, a Capital Gains Tax (CGT) liability was probably the last thing they were thinking about.

The woman owned a house with her husband and they lived in it together. She also owned a flat and a second house, both of which were let out.

When the couple split up, in August 2007, the woman moved into the flat. She intended to stay there pending a divorce from her husband. When the tenancy on her house ended in April 2008, she moved into that, with the intention of remaining there permanently. She refurbished the house and, even though she did not expect to sell it in a flat market, put it on the market in case a sale should materialise.

Later, she was reconciled with her husband and moved back into their jointly owned property in November 2008. Her own house was sold in January 2009.

She claimed the profit she made on its sale was exempt from CGT as it was her ‘principal private residence’ (PPR). HM Revenue and Customs (HMRC) disagreed and sought to tax the gain. The argument ended up in the Tribunal.

The Tribunal ruled that the house did not qualify as her PPR. Despite the fact that between April and November 2008 she had nowhere else to live, her occupation of the property did not have the ‘degree of permanence’ necessary for it to be categorised as her residence.

Putting the property on the market, even though it was not expected to sell, appears to have weighed heavily in the decision against her.

The case shows clearly that HMRC will interpret strictly the rules for the availability of the PPR exemption, one of which is that the residence must, as a matter of fact, be the permanent residence of the claimant.


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