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.