[2011] UKFTT 457 (TC)
TC01309
Appeal number
TC/2010/06538
Capital
Gains Tax – Whether property was only or main residence of Appellant – Whether
Appellant had separated from his wife – Section 222 Taxation of Chargeable
Gains Act 1992 – Appeal dismissed
FIRST-TIER TRIBUNAL
TAX
MARTIN
BENFORD Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
JOHN BROOKS (TRIBUNAL JUDGE)
NORAH
CLARKE (TRIBUNAL MEMBER)
Sitting in public at Eastgate
House, Newport Road, Cardiff CF24 on 29 June 2011.
Martyn Arthur of Martyn F
Arthur Forensic Accountant Limited for the Appellant
Peter Massey of HM Revenue and
Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal by Mr Martin Benford against an assessment to capital gains tax
(“CGT”) for 2005-06 made under s 29 of the Taxes Management Act 1970 (“TMA”) in
the sum of £18,764.96. It arises as a result of the sale of a three bedroom property
at 60 Naseby, Bracknell, Berkshire (the “Property”). The CGT liability was
reduced to £16,525.32 following a statutory review by HM Revenue and Customs
(“HMRC”) to take account of the expenses (which, in the absence of any
documentary evidence, has been estimated) that would have necessarily been
incurred in respect of the sale of the Property.
2. It
is not disputed that Mr Benford purchased the Property in his sole name on 24
March 2005 for £124,500 or that it was sold on 30 September 2005 for £175,000
realising a capital gain. It is also common ground that Mrs Benford never
occupied the Property. However, Mr Benford contends that he is not liable to
CGT on the disposal as the Property was his principal private residence during
a period of separation from his wife. This can be contrasted with another
property bought jointly by Mr and Mrs Benford in October 2003 for £125,000
which was let until its sale for £168,000 in February 2006. Mr Benford fully
accepts that a liability to CGT arises as a result of the gain on the sale of
that property.
3. Section
222 of the Taxation of Chargeable Gains Act 1992 (“TCGA”) applies to a gain
accruing to an individual that is attributable to the disposal of a dwelling
house which “is or has at any time in his ownership been his only or main
residence” and no part of a gain to which s 222 applies shall be chargeable
to CGT if the dwelling house has been the individual’s only or main residence
throughout the period of ownership (see s. 223 TCGA). Under s 222(6) TCGA there
can only be one residence in the case of a husband living with his wife. A
husband shall be treated for CGT purposes as living with his wife unless they
are separated under a court order or they are “in fact separated in such
circumstances that the separation is likely to be permanent” (see s 288(3)
TCGA and s 282 Income and Corporation Taxes Act 1988).
4. Section
50(6) TMA provides that if, on an appeal, it appears to the Tribunal that an
appellant is overcharged by an assessment the assessment shall be reduced
accordingly but “otherwise the assessment … shall stand good.” It is
accepted by Mr Arthur, who appears for Mr Benford, that this places the onus of
proof on his client to establish, on a balance of probabilities, that not only
did he occupy the Property but that he did so as his residence during the
period he owned it and that during this time he was separated from Mrs Benford
in such circumstances that the separation was likely to be permanent.
5. We
first consider whether Mr Benford occupied the Property and if so whether he
occupied it as his residence.
6. Mr
Benford, who gave oral evidence under oath, told us that he bought the Property
“as seen” after separating from his wife and that at that time it was “unliveable”.
He had to board up broken windows and clean out the Property and he was not
able to move in for “a couple of weeks”.
7. He
explained that although he worked during the day as a tiler in the construction
industry he continued to carry out improvements to the Property whilst living
there. This included re-glazing all of the windows and installing central
heating in the house. However, Mr Benford was unable to give any approximate
date of when this work was undertaken other than to say it was during the
period that he lived at the Property. He also described his living conditions at
that time. There were no carpets or rugs just plain wooden floor boards, no heating,
no cooking or food storage facilities, no furniture to speak of and nowhere to
hang his clothes which he stored on the floor. Mr Benford told us that he slept
on an inflatable bed and that he had a kettle and bought takeaway food. He said
that he also had meals and showers at both the matrimonial home where Mrs
Benford still lived and at his mother’s house which was “10 minutes away” which
was also where he took his washing.
8. Despite
the separation from his wife all correspondence addressed to Mr Benford,
including his bank statements, continued to be sent to the matrimonial home. Mr
Benford explained that he did not notify his change of address to any official
body (eg his bank, utilities etc) as he was concerned about someone breaking
into the Property and described how on occasions youths had thrown bottles
through the windows.
9. The
only documentary evidence provided to us in support of Mr Benford’s occupation
of the Property were copies of two bills from Southern Electric and one from South
East Water. These are addressed to Mr Benford at his current address and show that
electricity and water were provided to the Property. However, as the Property
did not have a water meter the water charge would have applied whether or not
it was occupied. Of the two electricity bills, the first is dated 21 July 2005
and is for the period from 28 April 2005 to 15 July 2005; the second, dated 5
October 2005, covers the period from 16 July 2005 to 30 September 2005, when
the Property was sold. Although Mr Benford did explain that other than his
kettle and the lights, he owned no other electrical appliances and as that he
lived in the Property during the summer and went to bed early he would not need
much lighting, we were somewhat surprised at how little electricity was used
and note that the major item on each of the bills was the service charge. With
VAT, this accounted for the entirety of the 21 July 2005 bill which was for £9.48.
The 5 October 2005 bill shows that 31 units of electricity were used at a cost
of £2.27 and that the service charge was £9.44 with VAT making up the balance
of the total bill which was £11.86.
10. We were also provided
with two Council Tax Enquiry Forms from Bracknell Forest Council dated 18 April
and 3 October 2005. The first shows that Mr Benford contacted the Council
shortly after he bought the Property and at that time had “not moved in yet”.
His address was recorded as c/o the matrimonial home. The second of the forms
records notification of the Property having been sold. A letter to HMRC, dated
15 June 2010, from the Revenue Services Department of the Council states that:
Mr Benford owned [the Property] between 24 March
2005 and 29 September 2005. He did not live in it so was in receipt of an
exemption [from Council Tax] for six months of that time and a 50% discount for
the remaining period.
He lived at [the matrimonial home].
11. Before us Mr
Benford said that this was not the case as he had lived at the Property. He
admitted that he had not told the Council the truth as he wanted to reduce the
Council Tax on the Property.
12. Clearly whether or
not Mr Benford occupied the Property is a question of fact and, having
considered the evidence, we find that Mr Benford did stay overnight at the
Property during, but not throughout his period of ownership, and was therefore
in occupation. Having found that Mr Benford did occupy the Property it is
necessary to consider whether that occupation was sufficient to make the
Property his residence.
13. In Moore v HMRC [2010] UKFTT 445 (TC) at [38] Judge John Walters QC conveniently
summarised the authorities in relation to the issue of ‘residence’ as follows:
“A residence for these purposes must be a person’s
‘home’ (Sansom v Peay, ibid. at 6G), ‘a place where somebody
lives’ (Frost v Feltham, ibid. at 13I). However, ‘even occasional
and short residence in a place can make that [place] a residence’ (Moore v Thompson, ibid. at 24E). Goodwin v Curtis is more
helpful in assisting a resolution of the problem on the facts of this appeal.
The Court of Appeal in that case was unanimous in the view that ‘there must be
some assumption of permanence, some degree of continuity, some expectation of
continuity to turn mere occupation into residence’ (ibid. at 508I,
510H).”
Millet LJ said Goodwin v Curtis [1998] STC 475 said,
at 480:
“the question whether occupation is sufficient to
make him resident is one of fact and degree of the commissioners to decide”
14. Having regard to
all of the circumstances, in particular the absence of any convincing documentary
evidence to show that Mr Benford lived at the Property, the lack of furniture
and appliances there and the very small amount of electricity used, leads us to
conclude that there was not sufficient assumption of permanence or degree or
expectation of continuity to turn such occupation into residence.
15. Although our
finding that there was not sufficient expectation of continuity to establish
residence would be enough in itself to dispose of this appeal we have also
considered whether the circumstances of the separation of Mr and Mrs Benford
were such that the separation was likely to be permanent.
16. Mr Benford said that
during 2004 although their relationship was “amicable” he and Mrs Benford
“drifted apart”. Although they spent Christmas 2004 together for the sake of
the children (their daughter and Mr Benford’s children from a previous
marriage) it was felt that the marriage had come to end and that it was time to
move on. He told us that he continued to live in the matrimonial home but
started looking for somewhere else to live until he found and subsequently
purchased the Property moving in shortly after its acquisition. However, as we
have already noted, he continued to have his correspondence sent to the matrimonial
home which he visited for meals and to take a shower.
17. Despite their continued
amicable relationship Mr Benford maintains that the separation was intended to
be permanent until Mrs Benford told him sometime in the summer of 2005 that she
was expecting a baby. Because of this they decided to “give their marriage
another go” and Mr Benford moved back into the matrimonial home to live with
his wife. Their son, Harry, was born on 13 November 2005.
18. We did not find Mr
Benford to be an altogether convincing witness, especially in regard to this
issue, as he was somewhat vague as to when he separated from his wife and when
the reconciliation took place and was unable to provide us with even
approximate dates of these events which occurred about six years ago although he
was able to tell us with some certainty that a buyer was found for the Property
within a couple of weeks of it being placed on the market.
19. Mrs Benford did
not give evidence. If we had heard from her she may have been able to
corroborate her husband’s account of the separation and whether it was likely
to be permanent. However, in the absence of such evidence and given that Mr Benford
continued to use the matrimonial home as his postage address, had meals and
showered there, we have come to the conclusion that Mr Benford has not
discharged the burden of proof required to demonstrate that he was separated
from his wife in such circumstances that the separation was likely to be
permanent.
20. Therefore, in
accordance with s 288(3) TCGA and s 282 of the Income and Corporation Taxes Act
1988, Mr Benford is to be treated as living with his wife for CGT purposes. In
such circumstances, as s 222(6) TCGA provides that there can only be one
residence or main residence for a husband and wife living together and as Mrs
Benford has never lived at the Property, it is the matrimonial home and not the
Property that is her and Mr Benford’s main residence.
21. As such, even if
we had found it to be Mr Benford’s residence, s 222 TCGA cannot apply to the
Property and it must inevitably follow that the gain on its disposal is
properly subject to CGT. We therefore dismiss the appeal and confirm the
assessment to CGT in the sum of £16,525.32.
22. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
JOHN BROOKS
TRIBUNAL JUDGE
RELEASE DATE: 8 JULY 2011
Amended pursuant to rule 37 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009 on 30 July 2011.
