In Andrew Nunn v HMRC [2024] TC09127, the decision to sell off part of a garden to a developer resulted in the owner unwittingly becoming a developer, a fact not missed by the tax tribunal which found his favour terms of Capital Gains Tax (CGT) Private Residence Relief (PRR).

House with garden

  • Mr Nunn agreed to sell part of his garden to property developer, Mr Daly.
  • The agreed price was £295,000; £195,000 was paid on completion of the land sale and a further £100,000 on the completion of the sale of the second house to be built there.
  • Planning permission was obtained. Under a loosely worded contract, it was agreed that Mr Daly’s firm could start work before the actual conveyance of the land because the weather allowed it.
  • A formal contract of sale for the land was eventually signed and completed on 7 September 2016. By that stage, the land had been fenced off and the development was at second floor level.
  • On 9 January 2018, Mr Nunn submitted his 2016/17 Self-Assessment tax return, declaring sale proceeds of £195,000 and allowable costs of £222,000.00, resulting in a loss of £27,220.00.

HMRC opened an enquiry into the 2016/17 tax return denying loss relief and not allowing Capital Gains Tax (CGT) Private Residence Relief (PRR). It raised an assessment for £72,633.80 together with a notice of a suspended Penalty assessment of £20,155.87.

HMRC insisted that the Date of disposal for CGT was 7 September. By that stage the land was a building site and no longer part of the garden and as a result, PRR did not apply to the disposal.

Mr Nunn appealed to the First Tier Tribunal (FTT) arguing the time of disposal as 2 June when the land was in his use and enjoyment and formed part of the permitted area of his main residence. He submitted that a constructive trust was established by the 2 June agreement.

The FTT found that:

  • The 2 June agreement was not a contract for sale, it did not create a constructive trust. It was an agreement to allow a developer to start work and was silent as to what would have happened if the sale had not gone through. Had it not, Mr Nunn would have then had the benefit of the groundworks and Mr Daley would have had the disadvantage of incurring costs on an asset that he did not own.
  • Reviewing the CGT rules for disposal. It was agreed that the normal date of disposal for CGT (s.28 TCGA) was 7 Sept. This was when the contracts were made for the land sale.

Having found that the 2 June contract was an agreement for the commencement of development. The FTT made a detailed examination of the Badges of Trade and relevant case law. It concluded that:

  • Mr Nunn had probably purchased his house as an investment.
  • When he had agreed to allow a developer to start work on the development of the garden, he had effectively commenced a venture in the nature of a trade as a developer too.
  • The commencement of trade and the transfer into trading stock meant that the deemed disposal rule in s.161 TCGA applied. The disposal date for CGT was therefore 2 June.
  • As the land was still a garden and not separated from his house at that time, PRR applied.

Having found that CGT relief applied in full, the tribunal also quashed the penalty assessment.

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?

Gardens: selling or developing
What are the tax consequences of selling a garden for development purposes? What if the owner develops the garden? 

CGT: Date of acquisition or disposal
When is the date of acquisition or disposal of an asset for Capital Gains Tax (CGT) purposes? When do special rules apply? Why does it matter?

Profits from dealing in or developing UK land
A guide to the rules which replaced the old transactions in land provisions and extended UK taxation to all profits from trading in and developing UK land, regardless of residence.

Land: future consideration (overage)
A guide to the tax treatment of future consideration payable on the disposal of land.

Badges of Trade: Are you trading or not?
Are you trading, running a business, or just buying and selling investments? Is your 'side-hustle' taxable? 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.

Penalties: Error or Mistake in a return
What penalties apply for Errors in returns and documents? How are they calculated? When can they be reduced or suspended?

External links

Nunn v HMRC [2024] TC09127