In Heather Whyte v HMRC [2021] TC08215, the First Tier Tribunal (FTT) found that six building plots sold from the grounds of a listed mansion house had been appropriated to trading stock. No Capital Gains Tax (CGT) Private Residence Relief (PPR) was available.

  • Mrs Whyte purchased the 17 acre Bunny Hall estate in 2001. The house was in a poor state of repair.
    • The acquisition was partially financed from funds lent to Mrs Whyte by her husband, a builder and property developer.
  • The family moved into a flat in Bunny Hall in March 2002.
  • In order to finance the renovation of Bunny Hall, which would otherwise have been prohibitive, English Heritage approved the sale of six building plots within the grounds of the property.
  • Between 2003 and 2006, all six plots of land were sold by Mrs Whyte. The first five were sold to Mr Whyte and the sixth to a third party.
    • At the time of sale, all of the plots had utilities in place and varying degrees of groundwork had commenced.
    • Mr Whyte undertook the development of all six plots. 
  • Mrs Whyte’s tax returns reported the disposals of the plots, claiming Private Residence Relief (PRR).
  • HMRC opened enquiries, eventually issuing Closure Notices on two alternative bases, either Mrs Whyte's disposals were:
    • Trading transactions, liable to Income Tax.
    • Capital transactions, liable to CGT but not PRR.
  • Mrs Whyte Appealed to the FTT.

The FTT identified a number of issues to be determined. It was found that:

  • Bunny Hall was acquired by Mrs Whyte as a capital asset.
  • Later, a number of the Badges of Trade were present, indicating Mrs Whyte was engaged in an adventure in the nature of a trade:
    • The sale of the plots had a profit-seeking motive.
    • There were multiple transactions.
    • Mrs Whyte had previously been engaged in similar trading transactions, both jointly with Mr Whyte, and as an employee of his.
    • The plots had been modified and changed to make them more easily saleable or saleable at a greater profit. This included the division of the plots, removal of a restrictive covenant, clearance of the sites, construction of an access road, installation of services and, to varying degrees, the commencement of construction work.
    • The plots had to be sold in order to repay the temporary loan from Mr Whyte used to acquire the estate.
  • The plots were appropriated from capital to trading stock on 8 May 2003 when plans were submitted to the local Council identifying the six plots.
    • This appropriation was subject to CGT, with subsequent profits subject to Income Tax.
  • PRR was not available on the appropriation to trading stock.
    • The plots had been ‘denatured’ to such an extent that they were not garden or grounds of Bunny Hall. The information available suggested that extensive construction work had commenced before appropriation.
    • The statutory 0.5ha permitted area could be increased to between 1ha and 3ha for Bunny Hall. The boundary of the permitted area excluded the plots owing to their ‘denaturing’ as garden or grounds.
  • Mr or Mrs Whyte must have known the purchaser of plot six and agreed to sell the plot to him at a discount.
    • This was not a bargain at arm’s length for CGT purposes.
    • As the plot had been appropriated to trading stock before this sale, this finding was of limited consequence. Any profit on the sale to the third party must subsequently be computed in accordance with UK GAAP.

Other arguments presented by the taxpayer were dismissed. These were that:

  • There was ‘one composite transaction’, meaning that the renovations to Bunny Hall and disposal of the plots should be treated as a single transaction for tax purposes.
    • No explanation was given by the taxpayer of ‘one composite transaction’ or how this might apply to Income Tax or CGT. 
  • The disposal proceeds were held on Trust. The FTT stated this was “an argument wholly without any basis in law or any merit”.
  • A Deduction should be given for the ‘conservation deficit’ when calculating the tax due.
    • ‘Conservation deficit’ is the amount by which the estimated cost of repair of a heritage asset exceeds its market value on completion.
  • There was an overriding public interest consideration.

The FTT noted that Mr Whyte did not give evidence. It was inferred from this that important evidence was being withheld. There were gaps in documentary records and Mrs Whyte was found to be an “unreliable witness”.

Useful guides on this topic

PRR: Private Residence Relief
What is Private Residence relief (PRR)? What are the qualifying conditions? Can you claim relief on two homes? How do you claim PRR? Can you claim PRR if you develop your garden? 

Badges of Trade: Are you trading or not?
Are you trading, running a business, or just buying and selling investments? The 'Badges of Trade' are a set of indicators, built up over time by the courts, to decide when an activity is a trading or investment activity.

Gardens: selling or developing
What are the tax consequences of selling a garden for development purposes? What if the owner develops the garden? 

Profits from dealing in or developing UK land
A guide to the rules which replaced the old transactions in land provisions and extended UK taxation to all profits from trading in and developing UK land, regardless of residence.

External link

Heather Whyte v HMRC [2021] TC08215


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