HM Revenue and Customs (HMRC) are quick to recognise easy pickings when transactions occur and the conditions for relief against the relevant taxes are not met.

One of HMRC’s favourite targets – and this is likely to be increasingly the case following the announcement that property transactions are to be effectively linked to a taxpayer’s tax record – is where the principal private residence (PPR) exemption is in doubt.

In principle, the exemption is simple – a person will not pay Capital Gains Tax (CGT) on their PPR. Where more than one residence is owned, an election may be made as to which qualifies as the PPR.

However, whether or not a property can be chosen to be a PPR also depends on the facts of the case, and failing to establish that the property is one’s residence can prove fatal to a claim for PPR relief, as a leading case, heard last year, shows.

It involved a man who bought a flat and four months later sold it at a profit. He had intended to live in it and claimed he did so for a short time, but his partner was not happy there. He maintained another property at the same time and never got around to changing his address for various purposes or installing a telephone line. In addition, his use of electricity for the period of claimed occupation was very low.

Whilst the Tribunal accepted that the man had occupied the property for a period, it did not consider that there was sufficient evidence to show the degree of permanence necessary to establish the property as his PPR.

The decision as to whether a property is or is not a genuine residence depends on many factors, which are essentially practical and demonstrate ‘permanence’. Examples include:

  • registering to vote and pay Council Tax at the property;
  • telling third parties your new address;
  • installing telephone, cable, etc. lines;
  • registering with a doctor and dentist; and
  • forming other links with the local community


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