As the tax law changed many years ago, it is often forgotten that where a property is occupied rent-free by a dependent relative it will qualify for Principal Private Residence relief (PPR) for Capital Gains Tax (CGT) purposes, provided that the property was acquired before 6 April 1988 and that the conditions for dependent relative relief were satisfied by that date.
Although the number of cases affected will be relatively small, HM Revenue and Customs (HMRC) have announced that they have changed their view of the law and will now give PPR for properties which are occupied by dependent relatives which are let. This relief is available in addition to the principal private residence exemption on the owner’s own home.
Any property which qualifies as a principal private residence which is wholly or partially let as residential accommodation is eligible for an exemption for CGT which is known as the ‘letting relief’. This was introduced in 1980 and provides that the proportion of the overall gain attributed to the letting is exempt up to the lower of £40,000 or the amount of the principal private residence exemption.
Up until 1988 the principal private residence exemption also applied to residences that were occupied by dependent relatives. HMRC hitherto has taken the view that the ‘letting’ relief could not apply to properties that qualified for exemption as being occupied by dependent relatives.
This previous view was set out in HMRC’s CGT Manual as follows:
‘The further relief provided by Section 223(4) [letting relief] is not available in respect of a dwelling house which qualifies for private residence relief because it has been the residence of a dependent relative’.
The HMRC notice announcing the change of view indicates that, in their opinion, error or mistake claims are not available in respect of closed years of assessment as the previous view of HMRC was the ‘generally prevailing practice’ at the time.
The situation for open years of assessment, or years when amended returns can still be submitted, is explained in the notice as follows (our italics):
'If taxpayers wish to amend their 2005/06 return they must do so by 31 January 2008. Taxpayers who have already filed their 2006/07 returns have until 31 January 2009 to amend their returns. If there is an open enquiry into a return and we are able to amend it at the conclusion of the enquiry, we will amend it to reflect our current view.'
If these circumstances apply to you, you should look to amend your tax return within the available window for changes.
Although the number of cases affected will be relatively small, HM Revenue and Customs (HMRC) have announced that they have changed their view of the law and will now give PPR for properties which are occupied by dependent relatives which are let. This relief is available in addition to the principal private residence exemption on the owner’s own home.
Any property which qualifies as a principal private residence which is wholly or partially let as residential accommodation is eligible for an exemption for CGT which is known as the ‘letting relief’. This was introduced in 1980 and provides that the proportion of the overall gain attributed to the letting is exempt up to the lower of £40,000 or the amount of the principal private residence exemption.
Up until 1988 the principal private residence exemption also applied to residences that were occupied by dependent relatives. HMRC hitherto has taken the view that the ‘letting’ relief could not apply to properties that qualified for exemption as being occupied by dependent relatives.
This previous view was set out in HMRC’s CGT Manual as follows:
‘The further relief provided by Section 223(4) [letting relief] is not available in respect of a dwelling house which qualifies for private residence relief because it has been the residence of a dependent relative’.
The HMRC notice announcing the change of view indicates that, in their opinion, error or mistake claims are not available in respect of closed years of assessment as the previous view of HMRC was the ‘generally prevailing practice’ at the time.
The situation for open years of assessment, or years when amended returns can still be submitted, is explained in the notice as follows (our italics):
'If taxpayers wish to amend their 2005/06 return they must do so by 31 January 2008. Taxpayers who have already filed their 2006/07 returns have until 31 January 2009 to amend their returns. If there is an open enquiry into a return and we are able to amend it at the conclusion of the enquiry, we will amend it to reflect our current view.'
If these circumstances apply to you, you should look to amend your tax return within the available window for changes.
