residence relief Section 222(1-3) Dwelling House

Transcription

1 Principal Title goes private here Subtitle goes here residence relief 7 27 October April Name Surname One Peter Name Furnivall Surname Two Section 222(1-3) This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in: o a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence, or o land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area. Dwelling House o Is the property a house that is a dwelling o One definition: a structure of a permanent character that is used, or may be used for the habitation of man o See the Caravan cases (Makings v Elson 1976 / Moore v Thompson 1986) a caravan can be a dwelling house provided it is a permanent structure (eg on blocks and plugged into the utilities) o How far does a dwelling house extend, in terms of outhouses or separate retainers cottages? Are these buildings part of the entity which makes up the dwelling house, ie are they part of the curtilage of the dwelling house? 1

2 Residence o A residence is a place where somebody lives (Frost v Feltham 1980). HMRC look for some permanence of abode (see e.g. Kirby V Hughes 1993 / Goodwin V Curtis 1996) o Only or main residence. Factual main residence only relevant if a tax payer election under S222(5) is not made Section 222(5) Election o So far as it is necessary for the purposes of this section to determine which of 2 or more residences is an individual s main residence for any period the individual may conclude that question by notice to an officer of the Board given within 2 years from the beginning of that period but subject to a right to vary that notice by a further notice to an officer of the Board as respects any period beginning not earlier than 2 years before the giving of the further notice. Period of ownership o Section 222(7) o In this section and sections 223 to 226 the period of ownership where the individual has had different interests at different times shall be taken to begin from the first acquisition taken into account in arriving at the expenditure which under Chapter III of Part II [rules on computation of gain] is allowable as a deduction in the computation of the gain to which this section applies. 2

3 Period of ownership o Consider the tenant who acquires the freehold o Consider the owner of land who has his dwelling house built on that land o Consider a disposal between spouses (section 222(7)) Disposal between spouses o Section 222(7)(a) [In the case of an individual living with his spouse or civil partner]: (a)if the one disposes of, or of his or her interest in, the dwellinghouse or part of a dwelling-house which is their only or main residence to the other, and in particular if it passes on death to the other as legatee, the other s period of ownership shall begin with the beginning of the period of ownership of the one making the disposal. How many times has this point been overlooked? Permitted area o Section 222 (3-4) o Where the area required for the reasonable enjoyment of the dwelling-house (or of the part in question) as a residence, having regard to the size and character of the dwelling-house, is larger than 0.5 of a hectare, that larger area shall be the permitted area. o Where part of the land occupied with a residence is and part is not within subsection (1) above, then (up to the permitted area) that part shall be taken to be within subsection (1) above which, if the remainder were separately occupied, would be the most suitable for occupation and enjoyment with the residence. Note the words required, reasonable and most suitable. An objective test but with scope for argument! 3

4 The amount of relief Section 223(2) a fraction of the gain shall not be a chargeable gain, and that fraction shall be: (a) the length of the part or parts of the period of ownership during which the dwelling-house or the part of the dwelling-house was the individual s only or main residence, but inclusive of the last 36 months of the period of ownership in any event, divided by (b) the length of the period of ownership. Note importance of establishing what is the period of ownership Periods of absence o Section 223(3) o Only available if the dwelling house was only or main residence both before and after the absence for: o Periods not exceeding 3 years: and o Any period of absence where self or spouse/civil partner working full time abroad: and o Periods not exceeding 4 years when residence prevented by situation of place of work or employer requirement to reside elsewhere Property let to 3 rd party o Section 223 (4) o Where a gain to which section 222 applies accrues to any individual and the dwelling house in question or any part of it is or has at any time in his period of ownership been wholly or partly let by him as residential accommodation, the part of the gain, if any, which (apart from this subsection) would be a chargeable gain by reason of the letting, shall be such a gain only to the extent, if any, to which it exceeds whichever is the lesser of o (a) the part of the gain which is not a chargeable gain by virtue of the provision of subsections (1) to (3) above o (b) 40,000 4

5 Other points to watch o Partial business use (224(1) o Acquisition of dwelling house made wholly or partly for the purpose of realising a gain from disposal of it 224(3) o Flexibility under 224(2) to adjust relief in a manner which is just and reasonable where there is a change in what is occupied as residence o Private residence occupied under terms of a settlement (225) 5