Backdating capital gains tax

17-Sep-2019 14:06

Private residence relief was claimed on the property, but following HMRC enquiries into the tax returns of both individuals, tax assessments were raised.

Those assessments were appealed against, on the basis that the property had been used as a residence, and that the main residence election was conclusive as to which residence amounted to the taxpayers’ main residence.

At the tribunal hearing, HMRC stated that that the point in dispute was whether the individuals’ occupation was sufficient to deem the property as a 'main residence' for private residence relief purposes.

This point is set out in the capital gains manual at CG64495.

However, in a recent First-tier tribunal case, it appears that HMRC were rather confused about the effect of the election.

In Ellis v HMRC [2013] UKFTT 775 (TC), a property was bought in March 1999 for £100,000, and let out until 31 August 2004.

The tribunal judge pointed out that if HMRC’s arguments had been correct, it would have meant that an election under s 222(5) could never be conclusive, and he said that this was contrary to the plain meaning and effect of s 222(5). It seems rather strange that this case reached the tax tribunal in the first place.

After all, it appears to be clear from the wording of s 222(5) that taxpayers can elect conclusively which residence is their main residence for CGT purposes.

This point is set out in the capital gains manual at CG64495.

However, in a recent First-tier tribunal case, it appears that HMRC were rather confused about the effect of the election.

In Ellis v HMRC [2013] UKFTT 775 (TC), a property was bought in March 1999 for £100,000, and let out until 31 August 2004.

The tribunal judge pointed out that if HMRC’s arguments had been correct, it would have meant that an election under s 222(5) could never be conclusive, and he said that this was contrary to the plain meaning and effect of s 222(5). It seems rather strange that this case reached the tax tribunal in the first place.

After all, it appears to be clear from the wording of s 222(5) that taxpayers can elect conclusively which residence is their main residence for CGT purposes.

Points to note With regard to main residence elections, the legislation specifies a two-year time limit in s 222(5) for making the election.