Tax case provides good news for landowners

Dec 4, 2023

An interesting tax case that recently concluded has shed light on the application Private Residence Relief (PRR) to newly developed or redeveloped properties.  

HMRC vs Gerald and Sarah Lee [2023] dates back to 2010 and concerns a dwelling built on a plot of land purchased by the Lees.  

The Lees bought the land, known as 8 Nuns Walk, in October 2010 and demolished an existing dwelling on the site to make way for a new one.  

They then spent the next two-and-a-half years building the house, which they moved into as their main residence in March 2013.  

Shortly afterwards, however, in May 2014, the Lees decided to sell the property and lands, and it is this decision that prompted a legal challenge.  

Understandably, the Lees considered themselves eligible for 100% PPR and therefore exempt from paying any Capital Gains on the sale.  

HMRC disagreed, however, arguing that the ‘period of ownership’ applied to the acquisition of the land and not just the time the couple lived in the completed house, and therefore PRR did not apply in full. 

This was because the property was not the couple’s main residence while it was being built, and therefore this period, until the Lees moved in, may not be eligible for PRR. 

The case went to tribunal and although the tribunal agreed with some of HMRC’s arguments, it ultimately sided with the Lees.  

Key to this decision was the wording of the legislation, which states that the period of ownership specifically refers to a dwelling house, meaning the land could not be taken into consideration when calculating PRR. HMRC appealed the decision, but the Upper Tribunal upheld the original decision.  

The case will come as good news to landowners and farmers who have purchased land specifically to create a new dwelling.  

Ian Parker said:

HMRC vs Gerald and Sarah Lee [2023] was a very interesting case which ultimately sided with the defendants.

“It sets a welcome precedent that recently acquired land for the purposes of creating a new dwelling will not attract Capital Gains if the land and dwelling are later sold as a single asset.

“Had the tribunal ruled the other way, that would have had significant ramifications for landowners, and might even have sparked retrospective demands for Capital Gains for people in similar circumstances. 

“Thankfully that scenario has been avoided.”

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