Private Residence Relief (PRR) is a very useful relief for taxpayers and prevents Capital Gains Tax from being paid on the sale of a primary residence in most cases.  There are aspects of the rules which can be complex and these continue to cause difficulties for some taxpayers.

In a recent First-tier Tribunal case, Fountain & Anor v HMRC, the Tribunal found that the taxpayers in question were not entitled to claim PRR relief in respect of their disposal of a building plot, which they had argued was part of the grounds of the house.

The taxpayers owned an area of land behind their home which had previously been used in their haulage business. The business was closed and subsequently part of the property was divided into five building plots. Most of the plots were sold or gifted in 2006 and a new home was built on one of the plots for the Fountains, who moved in in January 2007. Their previous residence was then sold in February 2007 together with a field. The last plot (named ‘Plot 2’) was sold later, in December 2009 and led to the Tribunal case.

The taxpayers argued that Plot 2 formed part of the garden or grounds of their new residence on the basis that they were on the same title deed and the plot had formed part of the garden of their original home and continued to be used for their domestic use and enjoyment.

The Tribunal agreed that Plot 2 had indeed formed part of the grounds of their original home, however they did not believe this was relevant to the disposal in question. They also found that being on the same title was irrelevant.

The Tribunal found that Plot 2 was uncultivated and was physically separated from their new house by a separate plot which had a further house built on it and had been fenced off. They did not believe that Plot 2 has ever formed part of the garden or grounds of the new house.  No private residence relief was due and the appeal was therefore dismissed.

When dealing with PRR claims, it is important to thoroughly analyse the facts of the specific case and take previous case law into account.  Such planning at the time could help to prevent a nasty surprise in the future.  Eaves and Co would be delighted to assist if you have any queries on disposing of your home and the tax implications.

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