In Fountain v HMRC  TC04596, the First Tier Tribunal denied Capital Gains Tax (CGT) Private Residence Relief (PRR) on the sale of a plot of land associated with, yet not adjoining, the couple's home. There was no evidence to prove that it had ever constituted part of the garden or grounds of the home at the time of the sale.
Mr & Mrs Fountain had lived at 31 Doddington Road. An area behind the house was used by their haulage business.
When the haulage business was closed, the property was divided into five building plots. They retained 'Plot 2' and 'Plot 4'.
- They claimed that Plot 2 became part of the grounds of 31 Doddington Road. In 2007 after they sold that property and built a new one on Plot 4, they claimed that Plot 2 was part of the grounds of the house on Plot 4.
- Plot 2 was sold in 2009.
- The couple claimed Private Residence Relief (PRR) on Plot 2 on the basis that it had become and formed part of the garden and grounds of their new home on Plot 4.
- Relief was denied by HMRC.
The tribunal noted that there was no evidence that Plot 2 had ever been:
- Part of the garden or grounds of 31 Doddington Road
- Used to store building materials whilst the property on Plot 4 was being built, or that the Fountains had ever parked their caravan there.
- Cultivated as a garden that was used with Plot 4.
Also noting that:
- Plot 2 was separated from the new home by Plot 3 which was given to their son in 2006.
- At the time it was sold, Plot 2 had been levelled, appeared to be fenced off from the adjacent plots, and may have been covered in hardcore. Certainly, it was not cultivated.
There was also little evidence as to the condition of Plot 2 at the time of its sale. Photographic evidence that was provided was taken from the website 'Zoopla'.
The Fountains' arguments
- Plots 2 and 4 were part of the same title at the time of the sale.
- Plot 2 formed part of the garden of 31 Doddington Road, and when they moved to their new home on Plot 4 it became part of the garden or grounds of Plot 4.
- That Plot 2 was not cultivated at the time of the sale was irrelevant.
- That Plot 2 did not adjoin or surround Plot 4 was irrelevant.
The tribunal agreed with HMRC, with the following comments:
- Whether or not Plot 2 was part of the gardens or grounds of 31 Doddington Road is irrelevant. The issue is whether it was part of their residence at the time of the sale and at that time their residence was Plot 4.
- It does not follow that because it was part of the gardens or grounds of 31 Doddington Road that it became part of the grounds of plot 4 when they moved into the new house.
The fact that they are on the same title at the Land Registry is irrelevant.
The combination of the separation of Plot 2 from the house and its uncultivated state were also key to the decision. Although HMRC accept that a garden that is unused or overgrown can still be part of a garden, this is intended to refer to land which has traditionally formed part of the garden. It could not apply when the land in question has never become part of the garden in the first place.
- As so often happens in PRR claims, a lack of evidence for actual occupation of the land proved the appellants' undoing.
- It is possible to add land to your private residence, provided that it is within the permitted area and that you use the land for the enjoyment of your residence.
- The outcome of this case serves as a reminder that having evidence to support your claim is crucial if you are taking a claim to the tribunal.
Useful guides on this topic
PRR: Private Residence Relief
What is Private Residence relief (PRR)? What are the qualifying conditions? Can you claim relief on two homes? How do you claim PRR? Can you claim PRR if you develop your garden?