Capital Gains Tax when you sell your house – make sure you disclose all the facts to HMRC

19th June 2017

HMRC’s ongoing scrutiny of private residence relief is in the news again, with another case going before the First Tier Tribunal.

Mr & Mrs Ritchie were partially successful in their claim for relief on the sale of their home, which cost them less than £200,000 but which they sold to a developer for £2 million.

The lesson to be learnt from this case is one of the importance of disclosure, though.   Mr & Mrs Ritchie sold their home in January 2007.  Assuming that they submitted their 2006/07 tax returns on time, the deadline within which HMRC could enquiry into those returns would have been 31 January 2009.  They did not disclose any gains on their tax returns, believing that no tax was payable by virtue of private residence relief. But HMRC raised assessments in March 2013.  They needed to be able to show that the taxpayers had been careless in the completion of their tax returns in order to do this and they were successful.

In order to benefit from the protection of HMRC’s limited enquiry window, it is very important that taxpayers put all the facts before them and so here, even though no tax was thought to be due, the tax returns of Mr & Mrs Ritchie should have contained sufficient information to alert HMRC to the fact that the property had been sold, and the facts supporting the claim for private residence relief.

Although Private Residence Relief is a relief that affects most homeowners at some stage, the relief is fraught with complexities, as evidenced by the volume of cases that go before the tax tribunals.

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