Tax Tribunal Demands Compelling Evidence for PPR Tax Relief  

In Sabbir Patwary v HMRC [2024] TC09035, the taxpayer gave ‘remarkably little’ evidence to demonstrate that he occupied a property as his only or main residence. Consequently, his claim for £43,000 GBP Capital Gains Tax (CGT) Private Residence Relief (PRR) was denied.

The statutory provision known as the Principal Private Residence (PPR) relief, which is mainly governed by the Taxation of Chargeable Gains Act 1992, is intended to lessen the impact of Capital Gains Tax on the sale or other disposal of a person’s principal residence. If certain requirements are satisfied, the relief releases the taxpayer from paying Capital Gains Tax. These requirements state, among other things, that the subject property must have been the individual’s only or primary residence for the entirety of the ownership term, without being rented out or used only for business, and within predetermined size limits. If these requirements are not met, there may be a partial or complete Capital Gains Tax liability.

In the case of Mr. Sabbir Patwary vs. HMRC the First-Tier Tribunal Tax Chamber underscored the importance for taxpayers to furnish compelling evidence to substantiate claims for PPR relief. The ruling serves as a cautionary tale, highlighting the necessity for meticulous record-keeping to bolster one’s position in tax disputes. This article seeks to explore the pertinent facts of Mr. Patwary’s case, the legal principles and exceptions surrounding the PPR relief rule.

HMRC’s Assessment against Mr. Patwary

The Appellant, Mr. Patwary purchased a property at 19 Emmott Close, London, on 9 April 2010. He alleged to have lived at this property from April 2010 to October 2013, along with his then-girlfriend (now ex-wife) and a co-tenant, and thereafter claimed both PPR and letting reliefs upon the disposal of the Property. The property was sold on 26 February 2016, prior to which it was occupied by a sub-tenant since October 2013, while Mr. Patwary moved back to live with his parents.

The main dispute revolved around whether the house was the only or main residence of Mr. Patwary. HMRC does not provide specific guidelines regarding the duration required for a property to be considered a taxpayer’s sole or primary residence. Instead, HMRC evaluates each case based on its individual circumstances and facts. For example, a short period of occupancy immediately after purchase may not suffice, whereas returning to a property after a previous occupation may be deemed a resumption of residency. It is essential for taxpayers to demonstrate to HMRC that they resided in the property during the brief period in question. Case law indicates that HMRC assesses the quality of occupation rather than its duration.

The HMRC disallowed the PPR claim and passed the assessment, on the basis of the fact that Mr. Patwary did not use the said property as his main residence, leading to a tax stake of £43,199.80 on a gain of £202,170.

Tribunal’s focus – Whether PPR applied

The central issue for the Tribunal revolved around the applicability of the PPR relief to the disposal of the property in question.

In the instant case, the crux of the matter was whether the property in question qualified as Mr. Patwary’s principal residence during the relevant period. The determination of this issue hinged on a thorough examination of the facts and circumstances surrounding Mr. Patwary’s occupancy of the property. The Tribunal needed to ascertain whether Mr. Patwary had indeed resided at the property as his main home, as opposed to merely owning it or occasionally occupying it.

The Tribunal’s analysis extended beyond mere legal interpretations and delved into the factual matrix of Mr. Patwary’s occupancy, including the duration and nature of his residence, any evidence of his intention to treat the property as his principal residence, and any indications of alternative uses of the property during the relevant period.

Moreover, the Tribunal’s decision on this central issue had significant implications for both Mr. Patwary and the HMRC. If the Tribunal determined that the property did qualify as Mr. Patwary’s principal residence, he would be entitled to claim the PPR relief, thereby exempting him from Capital Gains Tax on the disposal of the property. Conversely, if the Tribunal concluded otherwise, Mr. Patwary would be liable for Capital Gains Tax on the gains arising from the disposal of the property.

Therefore, the central issue before the Tribunal carried substantial legal and financial ramifications, underscoring the importance of a thorough and meticulous examination of the evidence and legal principles governing the application of the PPR relief.

Limitation Period for Appeals against HMRC’s Assessments

In legal proceedings, limitation is of paramount importance. However, in the instant case, Mr. Patwary’s Appeal was submitted after the prescribed statutory limit as stipulated by the Taxes Management Act 1970.

The submission of documents and arguments beyond the stipulated timeframe can potentially jeopardise the admissibility of the appeal and may adversely impact the proceedings. However, the HMRC did not raise any objections to the late submission of Mr. Patwary’s Appeal, which may be construed as an acknowledgment of the Tribunal’s discretionary authority to admit late submissions under certain circumstances.

The Tribunal exercised its discretion and opted to admit the Appeal for adjudication, which reflected the Tribunal’s recognition of the need for fairness and impartiality in the administration of justice. Moreover, the Tribunal’s decision to admit the Appeal signified its willingness to consider the case on its merits rather than strictly adhering to procedural formalities. This approach further aligns with the principles of natural justice and due process, which prioritises the substantive rights of the parties over technicalities.

However, it is essential to note that the Tribunal’s decision to admit a late submission does not absolve an appellant of the consequences of non-compliance with procedural requirements. While the Tribunal may exercise discretion in certain instances, parties are generally expected to comply with procedural rules to ensure the efficient and orderly conduct of proceedings.

Evidence furnished by Mr. Patwary to establish proof of residence

Along with his witness statement, Mr. Patwary presented various documents, including mortgage statements, a letter from a shower company, water bills, a bill relating to leasehold services and a letter about an electricity prepayment meter. However, the Tribunal found the evidence insufficient to prove that Mr. Patwary lived at the property.


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HMRC’s Assessment upheld by the Tribunal against Mr. Patwary

Following a meticulous review of the evidence presented by both parties, the Tribunal arrived at the determination that Mr. Patwary had not adequately discharged the burden of proof essential to establish his residency at the property in question. The Tribunal’s decision was rooted in the fundamental legal principle that in matters of tax litigation, the burden of proof rests squarely on the taxpayer to substantiate their claims. Despite Mr. Patwary’s assertions and the documents he submitted, the Tribunal found the evidence to be insufficient in demonstrating continuous and substantive residency at the property throughout the relevant period.

Moreover, the Tribunal emphasised that the evidentiary threshold required to establish residency is substantive, necessitating documentation and testimony that convincingly support the taxpayer’s assertions. However, in this instance, the evidence provided by Mr. Patwary failed to meet this standard, as it did not sufficiently corroborate his purported residency at the property. The case also highlights that the determination of residence is not prescriptive and can depend on various factors. The Tribunal agreed that where bank statements are sent, particularly where information is more readily accessed online, is not determinative of residence.

Download the Judgment here:

Exceptions to the PPR relief rule

While the decision was held to be against Mr. Patwary in the instant case, it is also important to note a few exceptions to the PPR relief rule. If a property was once the homeowner’s primary residence but is not any longer, the last 9 months of ownership may still qualify for PPR. Further, homeowners may be eligible for Lettings Relief, if they have let out part or all of their property. In addition to this some accommodation provided by employers may qualify for the relief as well.

However, at the same time, it is imperative to be vary that even if you meet all the conditions for PPR relief, you will not be eligible for PPR if you dispose of all or part of your garden after you have disposed of your home and/or acquire either a dwelling house or spend money on it, or both, in order to obtain a gain on its disposal.

Tribunal Ruling’s Impact on Tax Litigation in the UK

The ruling in Mr. Patwary’s case emphasises the significance of strong evidence in supporting petitions for PPR relief. The Tribunal’s ruling to reject Mr. Patwary’s appeal highlights the need for careful record-keeping to support residency claims and reinforces the idea that taxpayers have the burden of evidence in tax disputes. This case may serve as a reminder to taxpayers to keep thorough records in order to support their claims before the court. Furthermore, the case also demonstrates the Tribunal’s dedication to maintaining the integrity of the tax system by making sure that relief provisions are utilised sensibly and legally.

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