David Whiscombe considers “degree of permanence” and “quality” of occupation in a recent case.
Once upon a time, people were pretty blasé about creating an entitlement to CGT “main residence” relief. Selling a vacant residential investment property? No problem, according to the bloke down the pub: bung in a bed and a few sticks of furniture, spend a couple of nights there and Bob’s your uncle. Well, not quite, perhaps; but you get the general idea.
However, over the years, we have seen HMRC place increasing reliance on the decision in Goodwin v Curtis  STC 475. In that case, by dragging in definitions of “residence” drawn from case law on electoral registration requirements and on whether someone was a “resident of the UK” for tax purposes, HMRC had persuaded the General Commissioners that a property was a “residence” for tax purposes only if it was occupied with “some degree of permanence, some degree of continuity or some expectation of continuity”. In other words, merely living in a house for a while does not make it your residence: something more is required.
The recent case of Yechiel  UKFTT 0683 (TC) goes even further. To the requirement of a “degree of permanence” it adds some requirement as to the “quality” of occupation. We think it goes too far.
Mr Yechiel bought a house in 2007. It required a significant amount of work and he also wanted to extend it, for which planning consent was granted in March 2008. Mr Yechiel got married in August 2008, but the house was never occupied as the marital home.
Sadly, Mr Yechiel’s marriage was short-lived. In April 2011 he moved out of the marital home and took up occupation of the house. That remained the case until December 2011 when he moved back to live with his parents, and the house was sold the following year.
It was thus undisputed that for a period of time Mr Yechiel did, in some broad sense “live” in the property. He slept there every night between April and July 2011 at least (what happened between August and December 2011 is unclear from the case). He told the local council that he was living there, and paid council tax.
When he moved into the house, he had no very clear intention. He didn’t want to live with his wife, but he didn’t at that time want to move back to his parents’ either. The Tribunal found that “He needed a home, and he thought that maybe he would like to live at [the house]. He therefore moved in with the intention of living there for a period of time.”
HMRC didn’t suggest that anywhere else was his home during that period: so, if the house wasn’t his home it followed that he didn’t for that time have any home at all. Yet Mr Yechiel lost the case.
He didn’t cook main meals there: he either ate at his parents’ home or had a takeaway. He took his clothes to his parents’ for washing. In the Tribunal’s view it was also relevant that “the utility bills for [the house] would indicate minimal use of the property” (though in the six months to July, 1736 kWh of electricity were used and the Tribunal doesn’t seem to have taken into account that the occupation was in the summer months) and that Mr Yechiel used his parents’ house for “social connection” (though there does not seem to have been any evidence given on that point).
That seems to have been his downfall. As the Tribunal put it: “We consider that as well as occupation (which clearly happened) and intention to occupy for a time with a reasonable degree of permanence (about which the point seems to be finely balanced), ‘quality’ is determined by what the Appellant actually did in the house. We consider that to have a quality of residence, the occupation of the house should constitute not only sleeping, but also periods of ‘living’, being cooking, eating a meal sitting down, and generally spending some periods of leisure there.” It might flippantly be observed that on that definition, many teenagers would fail to meet the definition of having a “home” for most of their teenage years…
More seriously, in invoking a “quality of residence”, the case takes the meaning of “residence” one stage beyond even the “degree of permanence” requirements of Goodwin v Curtis. The tests used to evaluate the “quality of residence” are questionable. We suspect that nowadays many city professionals living in a bijou flat will seldom cook at home, will do most or all of their socialising and leisure activities away from home and will regard the flat as primarily a place to sleep. Do they, on the authority of this case, have no “residence” for CGT purposes? That cannot be right.
For more information, please get in touch with your usual BKL contact or use our enquiry form.
This article was also published in Tax Journal issue 1424 and is available here on the Tax Journal website.