Fountain v HMRC  TC 04596
Facts of the case
Mr & Mrs Fountain owned a home (31 Dorrington Road) with land at the back from which a haulage business was also operated. After the closure of the business, this land was divided into five plots. Two of the plots (Plots 1 and 5) were sold shortly afterwards and a further plot (Plot 3) was gifted to their son. Mr & Mrs Fountain retained two of the Plots – Plot 4 and Plot 2. Mr & Mrs Fountain built a new house on Plot 4 and moved into this house. The two plots were physically separated by Plot 3 and access to Plot 2 from Plot 4 was only possible by walking along the road past Plot 3, on which a house had subsequently been built. Their original house (31 Dorrington Road) was sold and then they sold Plot 2, claiming Principal Private Residence exemption on the sale of Plot 2.
The issue before the First-Tier Tribunal was therefore whether Plot 2 was part of the garden or grounds of the new house constructed on Plot 4. Following the case of Varty v Lynes , it was already determined that in order for the Principal Private Residence relief to apply the land must form part of the garden or grounds of the taxpayer’s residence at the time of the sale. The fact that the land may have been part of the Mr & Mrs Fountain’s garden of 31 Dorrington Road was irrelevant, what was fundamental to determine was whether it represented part of the garden or grounds of the new house constructed on Plot 4.
The First-Tier Tribunal determined that the sale did not fall within the provisions of the relief for two key reasons – firstly that the plot was uncultivated and that Plot 2 was physically separated from the Plot 4 on which the house was built.
In dismissing the taxpayer’s appeal, the Tribunal considered that the fact that Plot 2 and Plot 4 were part of the same legal title registered with HM Land Registry was irrelevant, stating that “the way in which HM Land Registry chose to register title to land does not affect whether the land can be described as a residence or garden or grounds of a residence”.
They also referred to HMRC’s Manuals CG64367 which contemplates that it is possible for land which is physically separated from a residence to still be part of that residence’s garden or grounds, but commented that such a situation was unusual. They also felt no reliance could be placed on the statement within the HMRC’s Manuals CG64360 which states the fact that a garden was unused or was overgrown was not a reason to excluded the garden and grounds for the purposes of the relief as based on the facts before them the Tribunal considered there was no evidence to support the fact that Plot 2 was ever cultivated as a garden which was used with the house on Plot 4.
What does it mean
The availability of Principal Private Residency exemption remains a matter of great scrutiny by HMRC and the above decision acts as a reminder to those taxpayers looking to sell off part of their garden, that it is vital to retain evidence that the land sold was part of the garden or grounds of their main residence right up to the point of disposal. Where this land is physically separated from the main property the threshold to establish its use is likely to be significantly higher, and therefore contemporaneous evidence, such as photographs, to support such an assertion will be needed.