In Mark Campbell v HMRC [2022] TC08398, the First Tier Tribunal (FTT) concluded that the purchase, modification and sale of four properties in five years was not trading and was subject to Capital Gains Tax (CGT). No Principle Private Residence (PRR) relief was available on the disposals as the properties did not have sufficient quality of occupation.

  • HMRC wrote to the Appellant requesting Self Assessment tax returns as they had information suggesting he had acquired and disposed of four properties between 2010 and 2015 selling each one for more than he paid for it.
  • The taxpayer’s agent responded claiming that:
    • 10 Woodhouse Close was purchased in December 2010 with the intention of becoming the Appellant’s main residence with a girlfriend. Prior to moving in the relationship broke down, the property then ceased to be appropriate for him and was sold in April 2012.
    • 28 Bramshill Close was purchased in October 2012 with the intention of becoming his main residence. 2 Bramshill Close, a detached property became available shortly afterwards and was purchased with finance on 8 February 2013. Both properties required refurbishment and the appellant resided in 28 Bramshill. 
    • The appellant wished to reduce his reliance on borrowings so listed both properties for sale, selling them in June 2014 (2) and January 2015 (28) respectively.
    • A gains calculation was attached in respect of 2 Bramshill close, PRR was not available as the property had not been occupied.
    • 8 Wigshaw Lane was acquired in June 2015, it required more renovation than the Appellant had intended as he did not undertake a survey prior to purchase. This caused conflict with neighbours which meant the Appellant did not wish to live in the property. It was sold in March 2016.
    • The disclosure claimed the appellant intended, but was unable, to occupy 8 Wigshaw lane as he resided in Job-Related Accommodation (JRA), he lived with his father as his carer.
  • HMRC issued Discovery Assessments and raised penalties on the basis that:
    • The Appellant was trading and profits should be subjected to Income Tax.
    • The occupation of his parents' house was not JRA.
    • The omissions of the disposals represented Deliberate behaviour.

FTT decided that:

  • On balance, the activities were not trading, factors considered included:
    • While the Appellant generated profits from the activities,
      • The length of ownership of the properties was short.
      • The properties had been modified prior to sale.
      • There was a repeated pattern of renovation.
    • There was no connection with an existing trade or activity over a protracted period of time.
    • The Appellant was not a professional property developer.
  • PRR was not available as:
    • There was no evidence to support the required degree of permanence, continuity or expectation of continuity of occupation in respect of any of the properties.
    • Council Tax records showed the properties had all been empty for over two years.
    • There was limited evidence to show work undertaken to make them habitable.
  • Residing in his parent’s house was not JRA:
    • Doctors' letters supported that the Appellant cared for his father but that did not extend to supporting the proposition that the occupation of the property was JRA.
    • The existence and desire to acquire and live in other properties confirmed that there was no employment requirement to live in the family home.
  • The discovery assessments issued by HMRC were valid and the taxpayer could not displace the amounts as:
    • There was a valid discovery.
    • Receipts and invoices were not retained, figures provided to HMRC were estimates from memory and these figures had been used by HMRC in their calculations.
    • The taxpayer had failed to keep necessary records and evidence to substantiate the claims: he could not show the assessments raised were incorrect.
    • Closure notices were valid.
  • The level of penalties raised was appropriate as there was deliberate behaviour.
    • The appellant should have understood disposing of multiple properties would have tax implications or at least made enquiries to confirm.

The appeal was dissmissed and assessments modified to reflect the findings.

Useful guides on this topic

Badges of trade: Are you trading or not?
Are you trading, running a business, or just buying and selling investments? The 'Badges of Trade' are a set of indicators, built up over time by the courts, to decide when an activity is a trading or investment activity.

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?

PRR: Private Residence Relief: At a glance
A freeview 'At a glance' guide to Capital Gains Tax (CGT) relief on the disposal of your own home.

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

Discovery Assessments: At a glance
This is a freeview 'At a glance' guide to Discovery Assessments.

Penalties: Deliberate behaviour
What penalties apply to deliberate behaviour? What is Deliberate Behaviour?

External links

Mark Campbell v HMRC [2022] TC08398

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