In Gary Ives v HMRC [2023] TC08989, the First Tier Tribunal (FTT) found that the appellant was not carrying on a trade by renovating and selling three successive properties. These were family homes subject to Capital Gains Tax (CGT) and, as such, Private Residence Relief (PRR) applied.

  • Mr Ives bought and sold the following properties:
    • Ringmer: Bought in 2008 as two flats (£760,000) and sold in 2010 (£1.775m) as one dwelling.
    • Wandsworth: Bought in 2010 (£750,000) and sold in 2012 (£1.5m).
    • Crondace: Bought in 2012 (£1.731m) and sold later in 2013 (£3.25m).
  • Each property was significantly renovated to become a family home. Mr Ives lived in all of the properties whilst renovating and Mrs Ives moved in once habitable, which was often some time later.
  • The three moves were initially motivated by a need to live closer to family.
  • Renovating Ringmer was meant to be funded by the sale of the previous family home (Fullbrooks), but this did not sell. The financial strain caused Mr Ives to accept a good offer for the property.
  • Wandsworth turned out to be the wrong location and a mistake, so the property was quickly sold.
  • By the time Mr Ives and his wife moved into Crondace, the family keeping them in the area were starting to relocate and the Ives decided to move again to be closer to the family once more.
  • Mr Ives did not pay tax on any of the sales, assuming that PRR applied
  • HMRC enquired into these sales and believed that the profits were taxable as Trading profits. Closure Notices were issued and an accompanying letter from HMRC also stated that if the sales were Capital in nature, PRR would not apply as:
    • During the renovation of Ringmer and Wandsworth, Fullbrooks was Mr Ives's main residence. Mrs Ives had never really moved into either property.
    • Council Tax discounts were claimed for all three properties on the basis of them being uninhabitable or unoccupied.
    • Any residency was temporary.
    • PRR is denied where the property is acquired for the purposes of realising a gain on disposal.
  • Mr Ives appealed to the FTT.

The FTT found that:

  • Numerous friends and family provided witness statements that supported Mr Ives's account of why the properties were bought and sold and the nature of occupancy.
  • To establish whether the sales were trading in nature, the Badges of Trade were applied:
    • Repetition: These were three similar sales in quick succession, however, Mr Ives’ account provides personal, non-trading reasons.
    • Link to existing trade: Whilst Mr Ives was in the building trade, he was more of an odd-job man used to small projects. Large renovations were not a natural extension of his business.
    • Subject Matter: Residential property can easily be either a trading or investment asset.
    • Finance: two of the properties required heavy financing but none of the debt was structured in a way to facilitate quick sales.
    • Changes to the asset: All three assets were significantly altered prior to sale.
    • Motive: On the evidence provided, it appears that all three homes were enjoyed as family homes, even if for very short periods of time.
  • Overall, whilst many of the badges indicate trading when viewed in isolation, Mr Ives’s account explains these away. That Mr Ives was an honest witness was not disputed.
  • On the balance of probabilities, the houses were held as long-term investments and the transactions were not trading in nature.
  • Being subject to CGT, PRR did apply as each house was moved into with the intention of it being permanent. Each property was fully furnished and occupied and used in a manner consistent with a family home.

The appeal was allowed.

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. 

Is it a trade, a business or an investment activity?
Starting in business or running one? Is your new or existing business a trade, a business or an investment activity? The distinction is very important for tax purposes. This guide runs through key issues for tax purposes.

Residential property gains
The definition of 'Residential Property' is important for Capital Gains Tax (CGT) purposes when considering how a gain is reported, when tax is paid and the rates of tax that apply. What is a Residential Property gain? 

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

Gary Ives v HMRC [2023] TC08989


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