The tax man has put a new twist on claiming private residence relief in a bid to prove a builder was a trader and not merely trying to move up the property ladder by buying and selling homes.
The traditional HM Revenue & Customs (HMRC) view is the intention on purchase determines the tax treatment of a property.
This sets a roadmap for tax –
- If the intention is buy to let, then owners pay income tax on rents and capital gains tax on sales
- If the intention is buying to sell at a profit as soon as possible, then income tax is charged on any profits
In the latest case, the first-tier tax tribunal heard Trevor Hartland bought, refurbished and sold four houses between May 2003 and February 2008, which he alleged were his main home.
However, HMRC argued that another property where his parents lived was really his main home during the period as the property was his postal address and although Hartland denied he owned the property, the tax man suspected he did.
HMRC also told the tribunal that they viewed the property transactions as a chain of events rather than individual purchases and sales’, claiming that when looked at as a series, the impression was Hartland was a buy to sell trader rather than buying a home for himself and moving on.
The tribunal agreed the way a taxpayer acts despite their stated intentions is an important factor in tax investigations.
However, the case was judged not on if Hartland was trading properties as a living and claiming they were his main residence to obtain tax relief, but whether he was buying homes to live in, refurbishing them to sell and moving on.
In all but one case, the tribunal decided Hartland had lived in three of the properties as his main home – but not in the fourth, which was designated a buy to sell.
The case highlights the lengths HMRC will go to in trying to prove a property was not a home and how important establishing quality of occupation is for claiming private residence relief if property investors buy and sell several properties in a short time.