Principal Private Residence (PPR) relief has to be one of the best tax reliefs available. Firstly, it stops us having to pay a slice of any profit we make on the sale of our home to HMRC. Secondly, it is very easy to understand and apply. However, this isn't always the case as things can get complicated if, for example, you lived in the property for a short period only or if you have more than one property. PPR relief can mean more money in your pocket, but only if you get it right. This is illustrated by a recent tax case.
On the break-up of his marriage, the taxpayer moved into a property he had rented out previously. Roughly nine months later he sold the property and bought a new property with his new partner. He moved his personal possessions from the matrimonial home into the property and he paid council tax on it for the period he lived there. So far so good.
However, for PPR relief to apply the property must have been the taxpayer's residence. This means that he must have occupied it with some degree or permanence, some degree of continuity or some expectation of continuity. And, importantly, he must be able to prove that this was the case. A significant weakness in the taxpayer's
case was that important post, including bank statements, went to his new partner's home and not to the property. Indeed, the taxpayer was unable to show that any post of any significance, other than that relating to council tax matters, was addressed to the property.
There were other issues, including that the property was quite small and, although sufficient for a single man, would not have met the needs of the taxpayer, his new partner and her two children. If the taxpayer intended to live with his new partner (now new wife), then he must have viewed the property as a temporary solution. The claim for PPR was denied and the taxpayer was left out of pocket as a result.
There are lessons to be learnt here (as always). Firstly, never assume that PPR will apply merely because you have stayed in a property; instead, consider if the property was your home. Secondly, where there is some doubt then do all you can to show that you view the property as your home. If the taxpayer in this case had put the property down as his address with his bank etc. then the Judge would have found it harder to rule against him. And thirdly, make sure that you keep the evidence as the onus will be on you to prove your case.