Capital Gains Tax: Private Residence Relief – Burden of Proof

The recent First Tier Tribunal case of Patwary (https://caselaw.nationalarchives.gov.uk/ukftt/tc/2024/53) considered the burden of proof that a property was a only/main residence for tax relief purposes.

The availability of Private Residence Relief (PRR) available on your only/main residence is one of the most valuable Capital Gains Tax (CGT) tax relief’s available.

PRR will exempt a gain, or a proportion of a gain, on the sale of a dwelling house which has been an individuals residence during the period of ownership. For most people the home is their biggest asset and, with rising house prices, most likely to result in a gain. It is important therefore that PRR is claimed and due as appropriate.

How to qualify for PRR

For a dwelling house to qualify for PRR it has to actually be used as a residence. Furthermore it is a well established principle that ‘in order to qualify for the relief, a taxpayer must provide evidence that his residence at a property showed some degree of permanence, some degree of continuity or some expectation of continuity.’

First Tier Tribunal Case

Going back to the above case, Mr Patwary acquired a property in April 2010 and lived there until October 2013; the property was tenanted until sale in February 2016. HMRC contended that PRR was not due on the property, failing the permanence aspect mentioned above but also there was no proof. HMRC issued an assessment denying relief and Mr Patwary appealed to the First Tier Tribunal. HMRC contended that Mr Patwary did not change his address with the bank, HMRC, electoral roll and produced no documentation that related to occupation.

The onus of proof that an assessment is incorrect falls on the taxpayer. In this case the Tribunal found the evidence to be insufficient, the evidence produced was the kind of ownership but not occupation. With the lack of evidence Mr Patwary’s appeal failed.

A reminder for all

A timely reminder to ensure that you retain as much documentary evidence as possible of the occupation of a property for PRR. Especially one you may not have occupied for any length of time. Examples of proof are changing your address with banks and other establishments, council tax bills, notify HMRC, water rates, driving licence, and the such like. You can even provide photos and statements from neighbours.

Get In Touch

For more information or advice on Private Residence Relief and Capital Gains Tax, contact your local Whitings LLP office today.

Disclaimer - All information in this post was correct at time of writing.