In Elizabeth Rooke v HMRC TC09170 [2024] the FTT had to recalculate CGT on the disposal of a flat, jointly owned by siblings, one of whom did not understand the rules and had acquired her interests at different stages. To cap it all there was Private Residence Relief (PRR).
- Mrs Rooke acquired a Joint beneficial interest in a flat already owned by her brother in October 1999 and then acquired successive interests in the property, and even lived in it before it was sold at a gain in 2015.
- She reported Capital Gains Tax under Self Assessment with a claim in part for Private Residence Relief (PRR).
- She came to believe that she owned a greater interest in the property than she did, ended up in litigation against her brother and thought that she had been cheated by various parties.
- This all led her to think that her reported gains were incorrect and she submitted a claim for Overpayment Relief.
She received a repayment of £6,001 from HMRC who subsequently opened an enquiry into her return, raising an assessment for the refund so denying Overpayment Relief.
She appealed to the First Tier Tax Tribunal (FTT).
The FTT's first job was to sift through the evidence and find the facts. Mrs Rooke was not found to be clear on the facts. The judge found that:
- Mrs Rooke's initial interest amounted to 35.29% and cost £90,000. This was market value: the interest was acquired from a connected party (her brother).
- In 2001 she took out a mortgage on the property and acquired a further 14.71% interest making her share 50%. Her acquisition cost was £44,865.50.
- Also in 2003, she contributed £23,924 to a lease extension.
- The flat was let to tenants, or available for letting, throughout the above period until October 2013.
- Mrs Rooke occupied the flat as her residence between October 2013 and February 2015.
- In June 2015 the flat was sold. The net proceeds of the sale were £914,685 and these were split equally between Mrs Rooke and her brother (that is, £457,342.50 each).
- Mrs Rooke declared her gain on her 2015/16 tax return.
The FTT re-checked the CGT reliefs and calculations.
Mrs Rooke occupied the flat between October 2013 and February 2015 and it was sold in June 2015. This gave 17 months of occupation plus deemed occupation of four months, as the property was sold soon after this period of occupation, this was limited to the period of four months up to the date of sale.
- The PRR available was 21/188 of the chargeable gain, which is £33,349.
- PRR Lettings relief was therefore also limited to £33,349: as the lower of the PRR, the gain attributable to letting, and £40,000.
- The CGT annual allowance was £11,100 for 2015-16.
|
Share of net proceeds |
£457,342.50 |
|
|
Less: Costs |
158,789.50 |
|
|
Total chargeable |
298,553 |
|
|
PRR |
(33,349) |
|
|
Lettings relief |
(33,349) |
|
|
CGT Annual Allowance |
(11,100) |
|
|
Total reliefs/allowance |
(77,798) |
|
|
Taxable gain |
£220,755 |
Noting a couple of small typographical errors in HMRC’s Statement of Case calculation it found that the amount to be assessed as remaining due to HMRC is £6,308.44 (10p less than the amount set out in HMRC’s submissions).
Useful guides on this topic
Joint Property: Signpost
What is the difference between legal and beneficial ownership? How are the different forms of ownership taxed?
Private Residence Relief (subscriber guide)
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?
Private Residence Elections
What types of Private Residence Relief (PRR) elections are available? How do you make a PRR election or nomination? This guide includes a template letter that can be used for each of the three types of election.
Capital Gains Tax & Residential Property Gains
What is a Residential Property gain? The definition of 'Residential Property' is important for Capital Gains Tax (CGT) purposes when considering how a gain is reported, when tax is paid and the rates of tax that apply.
Overpayment Relief
What is Overpayment Relief? When can you claim Overpayment Relief? What are the conditions for a claim for Overpayment Relief? What are the time limits for a claim for Overpayment Relief?
Appeals
How to appeal a penalty for late filing of a tax return or late payment of tax. This section covers appeals in relation to tax returns and payments for income tax Self Assessment, Corporation Tax, PAYE, Non-residents CGT, VAT, ATED, SDLT and IHT.
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