A recent tax Tribunal decision has decided that HMRC’s method of apportioning non-business use of an asset which in part qualifies for PPR for taper relief is not just or reasonable.

Principal private residence relief (PPR) for capital gains tax purposes operates by removing a qualifying gain from the charge to tax. When a property is used for mixed purposes, any capital gain is apportioned between business and non-business use of the property. If non-business use is also covered by PPR, only the proportion of the gain attributable to business use is taxable.

Taper relief applied to capital gains made by individuals. The relief was introduced in 1998 and abolished on 6 April 2008. HMRC’s view was that, in the case of mixed use assets, taper relief should be apportioned between business and non-business of the asset. However, this creates an anomalous result when the non-business part of the gain has already been removed from charge as it results in part of the business part of the gain being treated as a non-business asset for taper relief.

In the recent Tribunal decision of IS Jefferies and LA Jefferies v HMRC [2009] UKFTT 291 (TC) it was decided that HMRC’s approach was wrong.

Mr and Mrs Jefferies sold their hotel. It was agreed with HMRC that the hotel had been used 35% for business purposes and 65% for private occupation. The capital gain before taper was agreed as £201,931. Taper relief was calculated as follows:




Mrs & Mrs J’s calculation

HMRC’s calculation



Less: cost





Gain qualifying for PPR (65%)



Gain before taper relief




Taper relief 75%


Business gain 35%

Less: Taper 75%



Non-business gain 65%

Less: Taper 15%





Gain before annual exemptions (to be split between husband and wife)




The result will be of interest to anyone who used part of their residence for business purposes (hoteliers, guest house owners, publicans, home-workers) and disposed of their property between 1998 and 2008, or are still arguing about their computations with HMRC. Many taxpayers will have used HMRC’s method of calculation, which was also written about in the tax press and discussed on the lecture circuit. Many will have not, as HMRC’s approach and the 1992 Capital Gains Tax Act are hardly intuitive. Even if this decision stands (it is open to HMRC to lodge an appeal), it may be now too late, or difficult for many taxpayers who have paid the wrong amount of tax to claim error or mistake. HMRC will probably try and argue that its method was the prevailing practice of the time. Unfortunately, it may take a Tribunal to decide on that point too.