In Gerald and Sarah Lee v HMRC [2022] TC 8502, the First Tier Tribunal (FTT) allowed an appeal for Private Residence Relief (PRR) for a replacement property. The calculation of the relief was by reference to the ownership of a dwelling house rather than the land on which it was built.

  • In October 2010 the appellants purchased a residential property with attached land. They not move in at that time.
  • Between October 2010 and March 2013 the residential property was demolished and a replacement house built.
  • From March 2013, the appellants lived in the newly built house enjoying the garden and grounds.
  • The property was sold in May 2014 for £5,995,000.
  • The appellants filed their tax returns in January 2016 on the basis that the whole of the gain was covered by Private Residence Relief (PRR).
  • HMRC opened an enquiry in January 2017 and issued closure notices including a chargeable gain of £541k for each appellant. HMRC contended that the calculation of PPR had been on an incorrect basis, as the taxpayers had not lived on the property for the first 43 month of ownership of the land.
  • Following a Statutory Review which upheld the decision, Appeals were lodged with the FTT.

The Law:

S.223 TCGA 1992 dictates the amount of relief available on the disposal of a main residence:

  1. A gain is fully relieved if a dwelling house has been the individual’s only or main residence throughout the period of ownership, or the period of ownership with the exception of the last 18 months (since reduced to nine months).
  2. Where (1) does not apply a fraction of the gain is relieved which is calculated as follows:

The length of time the dwelling house was occupied as a main residence / The length of the period of ownership

The appeal focussed on what 'period of ownership' meant, and specifically, the ownership of what, the land (which would calculate the relief with reference to October 2010), or the newly constructed dwelling house (which would calculate the relief with reference to March 2013).

The FTT found:

  • The PRR legislation does not provide a clear definition of the 'period of ownership'.
  • The natural reading of the legislation should be adopted unless it provides a clear anomaly.
  • That natural reading of the legislation is that 'period of ownership' is referring to the dwelling house that is being sold and not the land on which the dwelling house was built, as HMRC contended.
  • This reading did not create an anomaly.

The appeal was allowed.


We think that this possibly does create an anomaly. According to this interpretation, you could buy a plot of land,  obtain planning some years later, build, say a couple of years later, immediately occupy the house as your PRR until you sell, a couple of years later. You could then claim PPR on the entire gain despite the fact that over the course of the ownership of the land there was only a house on the land for a short time. HMRC might choose to appeal this decision, or they might not: FTT decisions do not set a precedent, so be careful if you rely on this reasoning!

UPDATE: This case has been appealed to the Upper 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?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Statutory Review (By HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

External links

Gerald and Sarah Lee v HMRC [2022] TC 8502

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