Michael J Harte and Brenda A Harte v HMRC [2012] TC01951: a couple’s Capital Gains tax election to treat an inherited property as their main residence was denied: the property never qualified a “residence”.

A gain made on the disposal of an individual’s private residence is exempted from Capital Gain Tax by private residence relief (often called PRR). Where a taxpayer acquires two private residences he may elect under s.222(5) TCGA 1992 to nominate one to be treated as his main residence for tax purposes.

  • The s222 election can be used to allow a taxpayer to “flip” from one residence to the next for tax.
  • It also allows a taxpayer to nominate one residence for a very short time - say a week.
  • The property concerned must be a residence in order to be subject to an election.

Michael and Brenda Harte were left a second property “Alder Grove” by a relative in their will. They also owned a main residence, their home at Crofts Road. They stayed at Alder Grove on odd occasions, but there was little evidence presented to the Tribunal to show that they regarded it as a home, or intended on it becoming their home.

Ahead of disposing of the Alder Grove they made a s.222 election to treat Alder Grove as their main residence for the period 11 October 2007 to 19 October 2007. At all other times, Crofts Road was their main residence for capital gains tax purposes. There was no record of the dates that they actually occupied each property.

HMRC denied them CGT relief on the basis that Alder Grove had never been their private residence.

The First Tier Tax Tribunal agreed with HMRC; there was neither the quality of the occupation or the intentions in respect of the occupation of the property to satisfy the test of “residence” in section 222 TCGA.

The decision is in line with a string of similar cases heard in recent years – on each occasion the taxpayer fails to establish sufficient quality of occupation to prove that a property is a residence.

See: Michael J Hart and Brenda A Harte [2012] TC01951