Dutton-Forshaw v HMRC: Expectation of continuity of occupation considered in PPR case

In the recent First-tier Tribunal case of Richard James Dutton-Foreshaw (RDF), the tribunal agreed that RDF was entitled to principal private residence relief (PPR) despite only living in the property for seven weeks. As in many other PPR cases, this case also involved a marriage breakdown as well as ongoing changes in the taxpayer’s personal affairs, which impacted where he maintained residence. The decision was very much based on the specific circumstances surrounding the occupation of the property and may provide support for those who are making similar claims in respect of short periods of occupation.

Facts of the case and points of issue

The appeal was made against an assessment for the year ended 5 April 2010 in respect of the disposal of 32 Cornwall Gardens, a property situated in London which was originally acquired in June 2006. Although RDF had lived there between 5 August and 26 September 2006, he had made a claim for PPR and lettings relief which would reduce the charge to nil.

The facts were somewhat complex mainly in view of the number of properties involved in two specific locations. During a 15 year period to the disposal of 32 Cornwall Gardens, he had owned and occupied eight properties, situated in London, where he worked long hours and in Lymington where initially he took time out at weekends to be with his wife and young daughter, having decided that Lymington was a preferable place to raise their daughter. He also used property owned by his company in London, rented a friend’s flat and also a boat in Lymington.

RDF spent a considerable amount of time in London which lead to the breakdown of his marriage and subsequent divorce in 2002. Following their divorce, both parties moved into new properties close by in Lymington and RCF continued to rent flats in London. In June 2005, RDF then acquired his own flat at Petersham Place and subsequently elected in 2007 for this to be his main residence for PPR purposes.

Following his divorce, RDF started a relationship with a lady called Miranda, based in Lymington and in December 2006 exchanged contracts to buy Upper Pennington House in Lymington, with the intention of moving in together. Unfortunately before completion on the property took place, this relationship ended. Following completion, RDF was undecided what to do with Upper Pennington House long term but decided to undertake the renovation of it whilst he decided. Most of this renovation work was completed before June 2006, but the property was never put on the market for sale.

Following the breakup of his relationship with Miranda, RDF decided he wanted to be based in London. He decided to rent out his flat at Petersham Place and look for a new flat in London. In June 2006, he purchased 32 Cornwall Gardens, a one bedroom flat with potential to add a second bedroom where his daughter could stay. In July 2006, RDF applied for and obtained a parking permit from the Royal Borough of Kensington & Chelsea. One of the requirements of which is that this individual’s main permanent house must be in the borough.

In the meanwhile, RDF’s ex-wife, Ms Foreshaw had started a relationship with a yacht designer, Simon Schofield, who was due to work commitments temporarily moved to Spain. This relationship quickly progressed with Ms Foreshaw and Mr Schofield became engaged soon after they met , married in June 2006, and a son born in September 2006. RDF was very much opposed to the idea of his daughter living in Spain with Ms Foreshaw and Mr Schofield. He was therefore faced with the possibility of having to moved back to Lymington to look after her. Accordingly, in September 2006, RDF moved into Upper Pennington House in full-time and rented out Cornwall Gardens until it sale in November 2009. At this point he moved out, RDF surrendered his London parking permit.

The key point at issue was therefore whether RDF’s occupation of Cornwall Gardens was sufficient to qualify as a “residence”. In determining whether this is the case, regard has to be given to the nature, quality and circumstances of the taxpayer’s occupation of the property. In this case, there was clear evidence RDF had intended to be based on a long term basis in London, for instance his parking permit application, joining a London based dating agency, attending Church there, and declarations of his intention to his ex-wife. However, due to circumstances beyond his control, his occupation was shorter than expected. The tribunal found that when RDF moved into Cornwall Gardens, he hoped to live there on a continuous basis but was aware that circumstances might arise that would require him to live full-time in Lymington. He was therefore in a similar position to the taxpayer in David Morgan v HMRC [2013] TC 02596 case that whilst there was some expectation of continuity there was a definite possibility that the occupation could be cut short.

Based on the evidence presented to them, the tribunal found that RDF’s occupation was sufficient to qualify as a residence under PPR and accordingly no tax arose on its disposal.

If you would like further information on this case and principal private residence claims, please contact the TaxDesk on 0845 4900 509 and ask for Caroline Fleet.