Is intention becoming a major factor in claiming PPR relief?

The First Tier Tribunal has considered another case in connection with the availability of main residence exemption: Dr Amin Eghbal-Omidi (TC02841), published on 2 September 2013.

Dr Omidi bought a house at 28 Favart Road with his partner, Mr Mafi, exchanging contracts in December 2006, with completion in March 2007.  A planning application to extend the property was submitted by Dr Omidi and Mr Mafi in January 2007.  The property was sold in May 2007, making a gain of about £550,000.

Dr Omidi did not appear at the tribunal and did not provide a witness statement, so the tribunal was faced with evidence from various parties that was somewhat contradictory and confused.  The crux of the argument put forward for Dr Omidi was that he occupied the property as his main residence from March until May 2007, and that principal private residence (PPR) relief was therefore available on the disposal.

However, HMRC did not believe that the available evidence showed that Dr Omidi was entitled to claim PPR relief. Factors that were important in reaching this conclusion included the following:

  • The short period of occupation;
  • The loan on the property was taken out on the basis of the future development value;
  • Information provided did not provide actual evidence that Dr Omidi lived in the property;
  • Any evidence that was available pointed to the occupation being no more than temporary;
  • The property must have been marketed immediately after completion;
  • Dr Omidi was an experienced buy to let investor, who was well aware of the significance of a successful claim to private residence relief.

HMRC also referred to the Court of Appeal case of Goodwin v Curtis (1998 STC 475) which confirmed that residence denotes some degree of permanence, some degree of continuity or some expectation of continuity. Temporary occupation at an address does not amount to residence.

The main interest in this case lies in the emerging emphasis on the intention of the taxpayer when purchasing the property.  We saw this recently in the FTT decision in Morgan v HMRC (2013 TC 02596), which was referred to by HMRC in the case of Dr Omidi to demonstrate that the intention of the Appellant was the deciding factor rather than the quality of the occupation.

In their reasons for dismissing the appeal by Dr Omidi, the tribunal judges underlined this concept, saying that:

The burden of proof is on Dr Omidi in this appeal to satisfy us on the balance of probabilities that he did move to Favart Road with the intention of it being his principal private residence.

As there was a “lack of credible evidence” and assurances given by various parties appeared to be contradictory, Dr Omidi failed in his claim for PPR relief.

The new emphasis that is being placed on intention rather than quality of occupation when looking at the availability of PPR relief is interesting.  Previously, intention was important in the context of deciding whether an activity amounted to trading, and specifically whether a property should be treated as a capital asset or as stock in trade.

This case demonstrates not only that it is vital to have good evidence of permanence and continuity of occupation of a property as a residence, but that it is now also important to establish the intention when acquiring a property. This question goes to the heart of why an individual buys a property – was it acquired to live in as a residence, or was it bought as a development opportunity?

If you would like further information in relation to PPR relief please contact the TaxDesk on 0845 4900 509 and ask for Paul Howard.