Mike Truman considers the question ‘How long do I have to stay in a property for it to be treated as a residence?’ for capital gains tax private residence relief purposes in the context of two tax cases with different outcomes.
Lee Sharpe, in his August 2016 article about notable cases, mentioned the case of Richard Dutton-Forshaw v Revenue and Customs  UKFTT 478 (TC), where the taxpayer successfully claimed capital gains tax private residence relief. A similar-looking case, but one where the decision went the other way, was Kothari v Revenue and Customs  UKFTT 127 (TC), and a comparison of the two cases answers that oft-asked question: ‘How long do I have to stay in a property for it to be treated as a residence?’.
A tax ‘soap opera’
The facts of Dutton Forshaw read rather like an episode of a soap opera. Richard and Claire Dutton-Forshaw had a family home in Lymington, but Richard spent a lot of time working in London, which led to their divorce in 2002. Both of them kept properties in Lymington, and their daughter Emily lived with Claire.
By the end of 2005, he was in a relationship with another woman, Miranda, and was buying a new home, still in Lymington. Before they moved in, Richard and Miranda then split up, and he decided to settle permanently in London for the ‘fun’ lifestyle – he described Lymington as ‘nappy valley’. He went through with the Lymington purchase, however, and renovated the house, thinking that he would probably sell it. The tribunal accepted that he never spent a night there.
In March 2006, Richard found a flat in London that he wanted to buy. It only had one bedroom, but he had plans to create a second one for Emily, so she could come and stay with him. He joined a local Kensington dating agency, and in July 2006 he obtained a parking permit for the flat, on the basis that it was to be his permanent home. He moved in at the start of August 2006.
The plot thickens…
Meanwhile, back in Lymington, Claire had also met someone else, Simon Schofield, a yacht designer (and if you are as old as me, you will now realise that the soap opera is actually Howard’s Way…). She married him in June 2006, and their son was born in September 2006. Before then, and the tribunal decides that it was around March 2006, Richard and Claire were discussing (that’s the polite term) Claire’s plans to move to Spain with Emily, because Simon was working there on an Americas’ Cup yacht.
Richard is, again to be polite, not keen on this plan. He decided that he had to return to Lymington so that Emily could stay there. He therefore moved back into his house in Lymington at the end of September 2006, and lived there full time. It is not entirely clear whether Claire ever did move to Spain, although the implication in the case report is that she did. Nor is Emily’s reaction recorded, although the case report does note that she loved Spain, and her best friend was at the international school in Valencia that she would have attended. Perhaps the only saving grace for Richard would have been that she was seven, rather than a stroppy teenager!
The London flat was let, and then sold some years later. The question was whether the seven weeks of occupation were sufficient to make it his residence, and therefore qualify for private residence relief and the consequent lettings’ relief.
HMRC’s argument was that Richard never developed a settled intention to occupy the London flat as his home; he was moving between several properties at the time, including having just moved out of another London flat that he owned in order to let it. His occupation did not have sufficient permanence to be treated as residence. They pointed to the fact that his bank statements went to his Lymington property as evidence that this was always his real home.
However, the tribunal accepted that he had moved into the London flat intending to live there permanently and to make his life there. Although there were already discussions about Claire moving to Spain, the tribunal accepted his evidence that she could act ‘spontaneously’. They therefore concluded that ‘when Mr Dutton-Forshaw moved into 30 Cornwall Gardens, he hoped to live there on a continuous basis but was aware that circumstances might arise which would require him to move to live full-time in Lymington.’ That was sufficient intention for the property to be a residence, which was the only point at issue.
A different outcome
So is the answer to the question posed at the start of this article ‘seven weeks’? Let’s look at Kothari.
Mr Kothari had owned a two-bedroom flat in Mayfair since 2005, but it had been let until January 2009. The evidence for Mr Kothari was that he had moved in on 29 January 2009 and occupied the property as his main residence, because it was near to his offices. However, in February he had been approached by an estate agent who said he could get a very good price for the flat. He had therefore put it on the market and received an offer in early March. The property was sold in July 2009.
Mr Kothari had elected for the property to be his main residence. An election was necessary because he had a four-bedroom family home in Mill Hill. He needed a family home because he had a family – a wife and three young children. However, the family had never actually moved into the flat, no doubt on the basis that the children each having a bedroom of their own was preferable to cramming them all into one. The oldest child was at school, and no arrangements had been made to transfer him to a school in central London. The only items of furniture moved to Mayfair were some children’s cots – Mr Kothari simply purchased the former tenant’s furniture.
Mr Kothari’s agent produced a council tax bill, TV licence and electricity bill for the flat as evidence that it was the family home, but was unable to explain why the council tax bill was addressed to the home in Mill Hill rather than to the flat. The offices turned out to be rented, and moreover were first occupied two weeks after the supposed move to the flat.
Not a ‘residence’
But still, his evidence was that he had been in the flat from late January to July, around six months, which means at least three times as long as Richard Dutton-Forshaw. So was that enough? No, said the tribunal. The occupation did not have the necessary permanence or continuity, or expectation of continuity, that is required for it to be a residence.
Mr Kothari probably did not help his case by not appearing in person at the tribunal; he left his agent to present the case. But even so, once the evidence was examined, it did not stack up. The idea that a family of five were going to move from a four-bedroom house to a two-bedroom flat was inherently improbable, and there was little if any independent evidence to corroborate the claim. Indeed, there was plenty of evidence that pointed the other way.
The wrong question
So, finally, we can answer that question at the start of the article, ‘How long do I have to stay in a property for it to be treated as a residence?’. And the answer is, ‘That’s the wrong question’. It’s not about length of time, it’s about quality of occupation. If you are occupying the property as a permanent residence, but are forced to change your plans by circumstances, it is a residence. But if you occupy it on a basis that is always intended to be temporary, with no expectation of permanently settling there, it will not be a residence even if you stay there for several months.
This article was first printed in Property Tax Insider in September 2016.