Massive capital gains tax - private residence relief case

00ec25

MEsteve wrote: »

I spent some time reading various helpsheet on the HMRC website and I have read quite a bit online now where it says in order to qualify for PRR on capital gains tax - one has to have lived at the property as the main residence. It seems odd to me that it doesnt specify that the 'job related accommodation' clause makes this not necessary...

but HS283 does say that - spage 5 Job related accommodation:
http://www.hmrc.gov.uk/helpsheets/hs283.pdf
"If you live in accommodation that is job-related and you also own a dwelling house that you intend to occupy as your only or main residence, the dwelling house you intend to occupy is treated as actually being occupied by you as a residence during the period in which you intend to occupy it, even if you never actually live there."

your problem appears to be HMRC are applying the rules for non job related accommodation to you, in that latter case then a "period of absence" has to have actual occupation before and after.
However, where the "absence" is caused by living in job related accommodation then the only test is one of intention to live in at some future point - not actuality of so living. that is why military personnel living in quarters all their lives can then own and later sell a personal property even if they have never lived in it

Cornucopia

In addition to the above excellent advice...

The last 36 months of ownership ALWAYS attracts Private Residence Relief, irrespective of the usage in that period, if the house has EVER been a Main Residence.

The only other angle is that in the opening description you (OP) freely mix "my parents" with "my father" in terms of location/residency. They are not the same thing, and the situation will be easier to resolve if one parent had job-related accomodation for a period, whilst the other remained in the house in question.

edit: One further thought, the HMRC estimate of £57000 CGT means that the chargeable gain is about £316k on a flat 18% with no exemptions applied - is this in the right area? It seems high, but in London is feasible.

00ec25

Cornucopia wrote: »

edit: One further thought, the HMRC estimate of £57000 CGT means that the chargeable gain is about £316k on a flat 18% with no exemptions applied - is this in the right area? It seems high, but in London is feasible.

but the majority of the gain will be at 28% not 18%. 18% only applies to the total earnings including the gain below £42,475 in the year of sale. Everything above that is 28% so a more realistic extrapolated gain would be in the 200K area not 300k , either way though those are probably low value gains for a London property owned since the 1980's

MEsteve

ok - I think its now making sense.

For the HMRC to be taking this angle it must mean they are not seeing the job related accommodation element of this claim?

Yes it was a London property bought for £50k and sold for £550,000 30 years later-quite something I know....Our total potential liability I think I worked out at potentially around £128,000.

The more I discover about this - the more I wonder if we should even be paying anything at all. On the basis of advice from PWC we paid £17,000 which accounted to 36 months where my father worked jobs living nearby - but not on the Stud. You had to be nearby - but that probably does not fall into the same 'Stud provided accomodation bracket'. Thus this is the 'absence' from the London property.

However - then I read some of the PRR rules - and it says you have up to 36 month period where you can be absent but still pay no CTG?
On top of that - then I discover there is potentially £40k lettings relief. Given that we rented out the property for the majority of the time - then we could also apply for letting relief...

PS when I say father I mean the whole family...

jimmo

I’m glad to see its starting to make sense but there still could be a long way to go.

As things stand on this forum you are the best person to judge whether HMRC are, or aren’t seeing the job related accommodation element of the claim.

This may seem a bit obtuse but is there anything for them to see pointing to the fact that your family actually lived in job related accommodation?

Have HMRC actually been given a detailed computation which includes reference to it?

Are you assuming that because it is a part of your father’s Income Tax history, HMRC must know about it?

I am afraid it just doesn’t work like that.

If there has been a period of living in job related accommodation a well constructed capital gains computation will make the fact clear and therefore enable HMRC, not only to understand the computation but also to focus any enquiry into either the principles or the maths.

At this stage my guess would be that the HMRC Enquiry Officer doesn’t even know that job related accommodation is an issue. However it is also possible that the HMRC Enquiry Officer holds the view that actual or physical occupation is something different to deemed occupation.

As you have named PWC it would be very easy to slag them off for an inadequate service to your family but I can’t help the feeling that neither HMRC, nor PWC have a full picture of your family history and that is the root cause of your problem.

To my mind, PWC probably should have picked up the fact that your family has lived in job related accommodation but, certainly under Self Assessment it is not incumbent on HMRC to pick up anything of the like. It is up to the taxpayer to claim his own entitlement.

I also see that you have picked up on letting relief (max £40k) Yes it is probably important but I really think you should take this one step at a time.

At the moment the most important issue is private residence relief. That is a question of principle. Once that is settled you can move on to the question of who owned the house, father, father and mother or a trust .Letting relief, the annual exempt amount and the rate of tax chargeable are an issue but that is just sums, vitally important sums to your family, but totally dependent on the outcome of the private residence relief question

MEsteve

hi jimmo

So Ive just been through the correspondance with PWC and its clear they have understood the nature of our claim and the job related accomodation. However they did not mention the lettings relief anywhere. They also mention that the fact that the property is owned by the trust is irrelevant as far as the CGT computation is concerned.

I have re-read the HMRC letter that has caused this problem and I think you may be right regarding their not clear understanding of the situation. I think the give-away is in the introductory paragraph he writes: "The trustees have claimed relief for the property that they had a right to occupy. However due to job related issues he resided elsewhere."

That sentence does not sound like official job related accommodation.

I think there has been a slight problem of chinese whispers because the accountant who submitted the claim had the information from PWC but did not appear to make any strong case for job related accommodation - but merely said "due to work related circumstances he has been living in Stud accommodation as set out in appendix 1."

Appendix 1 was a table charting the years and work related residences where we were in Stud accommodation, and when we werent. However it doesnt seem this has been communicated clearly enough as a case and entitlement to job related accomodation.

I believe I read in the list for job related accom on the HMRC website - which had jobs included like the military - at the bottom was a mention of working on a Racehorse Stud...but I cant find the page again...it seems like this is the case that needs to be clarified now...do you know if evidence will be needed and what type?

jimmo

The info you are looking for are the first 2 links in post #2.

While we are here it is very important that whoever is going to argue your case with HMRC has a crystal clear picture in his own mind of what needs to be claimed as actual or deemed occupation and what, if anything, needs to be regarded as periods of absence.

Now going back to your post at #15 you said “
it says you have up to 36 month period where you can be absent but still pay no CTG?” That is incomplete the rules state that there can be periods of absence of up to 3 years for any reason but, in addition there can be periods of absence of up to 4 years where they are caused by the needs of an employment. The combined effect therefore is that it is quite feasible for there to be periods of absence totalling 7 years.

Even then, periods of absence can be extended indefinitely if the employment is abroad.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65040.htm

As things stand I am having some difficulty judging whether I needed to explain all that to you. If the periods of absence only total 3 years then your original interpretation, whilst technically incomplete, was good enough for your purpose of minimising the family tax bill.

Also, in your post today,#17, you asked for information I had already supplied. See my opening sentence in this post.

I suppose what I am trying to say is that you may need to consider whether you or your father should take up the cudgels with HMRC or pay a professional to do so on your behalf.

I know what I know about Capital Gains Tax because I spent quite a number of years, 40 hours a week, doing Capital Gains Tax and my knowledge is most definitely flawed. You are not going to learn it all in a week or 2 on a forum.

At the same time your family seems to have had a rough time paying the professionals.

I would have expected much better of PWC than your tale implies because PWC will have Capital Gains specialists but now you say a different accountant completed the Tax Return. Why?

Was he competent in Capital Gains or did he charge you a big fat fee for putting a few figures in boxes and a bit of window dressing?

Sadly, at the same time, you may need to judge whether the Enquiry Officer at HMRC knows his (capital gains) marbles.

What would be really useful to me is you actually giving us the details from the accountant’s appendix 1.Then we would have something solid to work with.

System

Your first post said your parents lived in the house inherited under a trust. Do you mean the trust owned (and still owns?) the house but your parents had the right to live there? (ie Interest in Possession trust?)

A later post says your parents bought the house.

Later on you say "we" lived there and "we" have been served with a tax charge.

Can you spell out the exact arrangements? Who owned the house? Who inherited it? Who sold it ?

xylophone

Can you spell out the exact arrangements? Who owned the house? Who inherited it? Who sold it

The OP has already said

hi - thanks for the response...the reason Ive not gone into the trust side is because firstly I dont fully understand it - but also the HMRC basically said its not an issue in this case - its equivalent to my father owning the property as far as tax is concerned...

and

So Ive just been through the correspondance with PWC and its clear they have understood the nature of our claim and the job related accomodation. However they did not mention the lettings relief anywhere. They also mention that the fact that the property is owned by the trust is irrelevant as far as the CGT computation is concerned.

This seems rather puzzling.

http://www.hmrc.gov.uk/manuals/cgmanual/cg65400.htm might assist?

MEsteve

hi jimmo and others - thanks for your posts. Happy New Year!

We have discussed this issue with family over christmas.

It seems now we need to work out whether we ought to be attempting to prove our actual residency as the HMRC have asked/deemed necessary - or we should be putting our energy into the argument for job related accommodation. The latter appears how we should have argued the case from the start - and what appears to be in the legislation as so helpfully pointed out here.

Although its become more clear to me and there is a temptation to 'have a go' given the amount of money at stake and after what jimmo has said about the complexity of CGT - it seems sensible to put this in the hands of a specialist to deal with. We have had reports from a lawyer friend that in his experience PWC tend to treat small business like this in a rather casual manner - and this fits with how we have experienced them. So we want to try to ensure we get someone who really knows their stuff and is prepared to work on our behalf to get the settlement we are fully entitled to. How to ensure someone is good Im not certain but we have a few leads through family members and said lawyer...if anyone has any advice on how one can make a judgement when choosing someone - that could be helpful. I assume a tax lawyer who specialises in CGT is the right direction...then I thought we ought to conduct an initial discussion with one or two and find out their hourly rate and any other thoughts.

The accountant I mentioned - who passed on the info poorly from PWC is there because he acts on behalf of the trust. Thats what seems to have made this process a little more convoluted - because he was dealing with the HMRC on behalf of my father. However he definitely does not seem to display any knowledge of CGT. We also need to have a trustee sign off on various issues. Initially I thought we should draft our own letter directly to the HMRC (previously our accountant was doing it) but now it seems perhaps a lawyer should do it if thats possible and allowed.