Private Residence Relief (PRR), formerly known as Principle Private Residence Relief (PPR) can often be a cause for contention between taxpayers and HMRC and this was proven again in the recent case of Dr S Iles and Dr D Kaltsas v HMRC (TC03565).

The outcome of the case is unlikely to be a shock to most practitioners who are familiar with the PRR rules; however it does show the disparity between what taxpayers/clients might expect.


The taxpayers in the case owned an investment flat which they had acquired in 1999 and let until they decided to sell the property in 2007.

Contracts were exchanged on 9 July 2008 with the sale completing on 25 July 2008. Having also sold their main residence, the taxpayers moved into the flat in question on 1 July 2008.

They were therefore present in the flat for 25 days and sought to claim PPR relief on the basis that it was their only residence during that period, and therefore eligible for exemption for the final 36 months of ownership.

HMRC argued that the 25 day period of occupation was not enough to demonstrate that they intended to reside there, particularly as the flat was for sale and an offer had been accepted.


The tribunal agreed that the temporary nature of the occupation did not amount to “residence” for the purposes of the legislation; the taxpayers did not feel the property met their needs, had already found a suitable alternative and had already agreed to sell the property before moving in. The taxpayers’ appeal was therefore dismissed.

This case appears to be fairly straightforward as the occupation was so obviously temporary. Problems can arise in determining where to draw the line as to what constitutes permanent residence and it is therefore always worth seeking professional advice.

A recent tribunal case was heard concerning the benefit in kind rules on beneficial loans to employees (Mrs E Amri v HMRC).  In what may be a more unusual situation, the case concerned an individual who was employed by a bank and was provided with loans with two different interest rates.

Background and Facts

The taxpayer was provided with two loans from the bank that she worked for, one for £35,000 at 5.5%, which was the Bank of England base rate at the time, and another for £105,000 at 6.24%.

The HMRC official rate of interest for beneficial loans at the time was 6.25%.

The smaller loan was a staff loan whilst the larger loan was provided at the bank’s normal commercial rate.

HMRC enquired into Mrs Amri’s return, and argued that the whole sum received should be treated as one loan and taxed as a benefit in kind.  By using the averaging method for calculating the loan, Mrs Armi was deemed by HMRC to have incurred a much higher benefit that she would have done on the £35,000 loan.

Arguments and Decision

HMRC argued that all sums advanced by reason of employment were covered by ITEPA 2003, s.173(2)(a).  As HMRC argued the amount advances were a single loan, this would mean that the whole loan was subject to a benefit in kind tax charge based on the average rate.

The taxpayer appealed on the basis that the two loans were distinct and as a result the loan of £105,000 was exempt by virtue of ITEPA 2003, s.176 as comparable loans could be taken by members of the public.

The tribunal agreed with the taxpayer and refuted HMRC’s argument that there was only one loan, allowing her appeal.  It was noted that HMRC had not provided any real evidence that there was only one loan, and Mrs Amri had stated that different terms applied to each.


The decision appears to be fair and common-sense.  What is more surprising is that the taxpayer was forced to take the case to tribunal to get the desired outcome and highlights the continuing trend of HMRC adopting aggressive stances where it is hard to identify the “mischief” they are targeting.

Here’s an interesting one!
In Corbett [2014] TC 3435 the taxpayer succeeded with a claim for Entrepreneurs’ Relief, despite having told HMRC some time before that she had ceased to be an employee.
To summarise the facts;

  1. Mrs Corbett was the wife of a senior executive and worked as a clerical assistant, especially in dealing with his diary and frequent marketing trips.
  2. The shareholders (who included Mrs Corbett) were negotiating to sell the company shares.
  3. The potential purchaser, an AIM listed company told them it was ‘against their policy’ for the wives of senior executives to be employed by their Group.
  4. HMRC argued that her resignation, recognition of her as a leaver on form P14 and the fact she was awarded no personal remuneration after leaving meant there was no employment, so the relevant condition of being an employee for the 12 months proceeding sale could not have been fulfilled so no Entrepreneurs’ Relief was due.
  5. The taxpayer argued that the change was cosmetic and her husband received extra remuneration to compensate for her carrying on her pre-existing employment.

The First Tier Tribunal found in favour of the taxpayer, saying that the substantive point of the matter was that employment continued, and potential technical breaches of the minimum wage regulations etc., were irrelevant.
Whilst no doubt Mrs Corbett was delighted with the result, it may have been less stressful to her if she had planned matters more carefully and made sure her tax planning documents reflected what the courts finally agreed was the substance of the situation.
Use advance planning and professional advice to make life easier!

Darren is a mythical former Inland Revenue man.  He worked in the local Tax District and was someone’s nephew or cousin or husband.  He was the man you thought of when the Inland Revenue (as all organisations do) made a mistake.  Your view was “Yes, it’s wrong, but Darren is not nasty.  Misguided sometimes, but he’s ok.  It will be sorted out fairly”.

This blog is a campaign to keep Darren safe from being bought a long Government mac and turned (against his nature) into a quasi Gestapo imposer of penalties and seizure of personal funds with no appeal for the taxpayer.

I am grateful to my loyal clients and the support given over 20 years of practice as Eaves and Co, but sometimes, I peruse my debtors list and wish that some would pay quicker.  I am sure many other business men think the same!  Perhaps, even HM Revenue and Customs?  Having said that and even knowing the hassle it takes to make a County Court claim it has never crossed my mind that I should have the right to raid a client’s bank account!  Surely that would be wrong in principle, because, by definition, any dispute would not have been fully resolved.

Quite apart from it being wrong in principle, I am absolutely certain that HMRC (like any other organisation) will make mistakes (see recent press regarding private debt collectors).  I am not saying they will do it on a vast scale, but publicity recently on tax credit debts and prior PAYE errors, suggests that mistakes can and will happen.

MPs, suppose you vote for the measure and then one of your constituents loses his business/marriage/health/commits suicide because of a raid on his wife’s account, which then leads to job losses…

Are these HMRC powers necessary or proportionate?  I think not, and commend the Taxation Articles  (May 29) “Just Say No” and “Departmental raid on the downtrodden”.

Wise HMRC personnel ought to campaign against taking too much power as well.  Adverse publicity caused by a bad case or cases (which statistically must be likely to happen) must surely have a much worse impact on overall compliance than any marginal benefit through acting to curtail current appeal rights.  The publicity contrast on the apparent abuse of power in that situation would be easy and profound.

I liked HM Inland Revenue.  They were civilised, sophisticated and well trained.  (I did used to work for them!)  I was nervous of HM Customs and Excise who seemed to be (I generalise) trained to hide behind rocks, shoot people and indulge in intimate body cavity searches – probably essential, but not a subject for normal, civilised commerce.  Then they merged and were given lots of new powers, responsibilities and centralised computer projects.

From having a foothold in every town through local Tax Districts (systematically closed some time ago) we now learn that even the centralised Help centres are to be closed down.  Inevitably, this will make HMRC appear more remote.  I think this is bad for the taxpayer, the country and indeed HMRC.

It is brought about by ‘wrong thinking’ in misnaming taxpayers as ‘customers’.  Sensible business strategies may focus on the 80-90% of core customers to make a business successful.  (Tesco are unlikely to offer tailor made Purdey shotguns at the end of a frozen food aisle).  However, HMRC has to work for all taxpayers, even those in unusual circumstances.  This is not easy, but having worked with people in various European jurisdictions my view is the general level of compliance in the UK is significantly higher than many other European states.  This is a huge benefit to society as a whole, but it is a tender beast, surviving through the public view of perceived fairness of action and local involvement.

Please do not turn Darren into a nasty man with a long dark mac raiding personal bank accounts.  HMRC do not need more powers.  They need more trained personnel to enforce existing powers consistently and fairly.

Give Darren more friends not powers!