Quality of Occupation Determines Tax-Free Status of Residential Property Gain
The supposition that residential properties are exempt from Capital Gains Tax (CGT) is a common, but incorrect, one.
You would think, for example, that if a person only owns one property, sleeps there quite often, has post sent there and tells the council that it is their home, that would be sufficient evidence to ensure that the onward sale of the property would not give rise to a CGT liability. This view might be strengthened by the fact that it was clearly the owner's original intention to live in the property long term.
You would be wrong. In a recent case, these facts were insufficient to demonstrate to HM Revenue and Customs (HMRC) that the principal private residence exemption applied, because the owner of a flat did not cook meals or do washing there and used very little electricity. His ownership was deemed to lack the 'quality' of residential occupation.
The flat had been bought for renovation so that the man could live there with his wife. The marriage failed, however, and whilst he was renovating the property he only lived there full time for four months and did not fully furnish it.
The First-tier Tribunal sided with HMRC. It remains to be seen if the decision will be appealed.