In Stephen Bailey v HMRC [2017] TC06085 the First Tier Tribunal (FTT) held that a property was the taxpayer’s main residence despite the short period in which he actually occupied it.

Private Residence Relief is a Capital Gains Tax (CGT) relief that exempts a gain made on the disposal of a dwelling house that is the taxpayer's only or main residence. The exemption may be restricted and the rules are subject to a number of exceptions.

  • In February 2008, the taxpayer’s company purchased a residential property: he intended it to be his family home.
  • This was intended to be a temporary measure, in order to secure the property while he obtained a mortgage to fund the purchase in his own name.
  • Due to the financial crisis, he could only obtain a buy-to-let mortgage.
  • The taxpayer acquired the property from the company.
  • The property was let to a friend of the taxpayer, who died in 2010; his widow continued to occupy the property for a short period.
  • The taxpayer moved into the property to redecorate it, with the intention that his family would join him.
  • Due to mental health issues, the taxpayer realised within a few weeks he could not cope with living in the house, so finished decorating and sold it on 31 August 2010.
  • No entries were included on the taxpayer’s 2010-11 tax return.
  • HMRC judged the omission a deliberate act, and assessed Penalties on that basis.
  • The taxpayer appealed to the FTT.

The FTT found that:

  • The taxpayer was a convincing witness and coherently explained why the property in question was a better family home than their existing residence.
  • When he moved into the property, on each occasion, the intention was for it to be permanent.
  • This was sufficient to establish it as his PRR while occupied, which then allowed the property to be deemed his PRR for the last three years (under the rules in force at the time), covering the entire period of ownership.


Unusual facts, and only an FTT decision, however, the importance of providing evidence in person should be noted.

The case was complicated by a series of procedural issues on each side, with HMRC opening an out-of-time enquiry before opening a Discovery assessment and the taxpayer appealing late. The discovery assessment was only in time if the taxpayer had deliberately understated his liability. No motions or evidence were presented in relation to these aspects.

The FTT noted that HMRC had not provided any support for the discovery assessment, so it anticipated that the appeal would have succeeded on this basis even if the substantive point had not gone in the taxpayers’ favour. 

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?

External link

Stephen Bailey v HMRC [2017] UKFTT 0658 (TC)

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