Private Residence Relief – Taxpayer vs. HMRC

Recently, a dispute between a taxpayer; Mr Richard Dutton-Forshaw and HMRC emerged when HMRC refused Mr Dutton-Forshaw’s claim for Private Residence Relief (PRR).

The circumstances that surrounded the case were somewhat unusual…

Mr. Dutton-Forshaw owned two properties in London, one near his work and the other in Lymington, however the latter was sold and Mr. Dutton-Forshaw purchased another property in the same area with the intentions of moving into it with his partner. Unfortunately the relationship ended before the move, and instead he occupied the property alone for two months before letting it.

When it came to selling the property, Mr. Dutton-Forshaw claimed PRR as this was a property that initially met the PRR requirements. The requirements to qualify for PRR are as follows:

• You have one home and have lived in the property since purchasing it
• You have not at any point let the property out (not including one single lodger)
• There is no part of it that you have used exclusively for business
• The entire property is just over an acre (5,000 square meters)

HMRC refused the claim and served Mr Dutton-Forshaw with a bill of £40,000 instead. HMRC’s reasoning was that Mr Dutton-Forshaw did not occupy the London property with the intention of it being his residence. Consequently, Mr Dutton-Forshaw appealed the decision and won after responding with solid evidence that supported his claim that he intended to move into the property and that his lack of communication with authorities was because of manic and complicated family issues. Therefore, HMRC considered his reasoning and allowed Mr Dutton-Forshaw to claim the PRR.

If you wish to avoid going through a similar stressful situation, ensure that it is clear you are a resident of any property you wish to claim PRR on. It is not enough to occupy it, it must be clear to an outsider that this is your home. One easy way to do this is to ensure you notify HMRC and your accountant of the address, and even join local institutions such as the library. This case proves that PRR can be claimed when a property is occupied for a short period of time. However, if you find yourself in a similar position you must have evidence that the property has in fact been your home.