The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
CAPITAL GAINS TAX
MAIN RESIDENCE EXEMPTION - AGAIN
‘How long do I have to live in a property in order for it to be my main residence for capital gains tax purposes?’
I am often asked this question. My stock answer is that that is the wrong question. It is the wrong question because there is no magical number of days after which mere occupation becomes vital residence.
The starting point is to establish whether there is or has been actual occupation for without that there can be no residence.
If occupation is established, next we must establish what was in the mind of the occupier at the time he or she moved in to the property. If it was to occupy for a temporary purpose that is not residence no matter how long the period of occupation. If it was to occupy as a residence on a permanent basis that is a residence no matter how short the actual period of residence.
It is difficult to prove what purpose might be in the mind of the occupier when he or she moves in to a property. It is important therefore for the occupier to marshall evidence of his or her purpose in case HMRC disputes the matter later. In the absence of hard evidence much will come down to the credibility of the taxpayer in front of the tribunal.
Robert James Dutton-Forshaw bought and moved in to a flat in London following the breakdown of a relationship. Eight weeks later he moved out of the flat and let it in order to look after his daughter who lived in Lymington.
The First-tier Tribunal accepted the taxpayer’s evidence that at the time he moved into the London flat he intended to live there permanently.
So the lesson we draw from this is that if we move into a property with the intention of making it our home for the foreseeable future then it is our residence and if that is important from a tax point of view we must take care to preserve evidence of that intention. HMRC helpfully suggests the following may be persuasive
Where the individual is registered to vote
Where routine correspondence is addressed
Where the individual’s car is registered and insured
In summary it is the quality of occupation, not the quantity, which is important.
LETTER TO THE EDITOR
Here is a reader’s contribution to FT Money dated 28 May 2016.
“I have had a number of meetings with pensions specialists from major private wealth management firms who tell me they can’t understand the rules now either. If they can’t – and they are intelligent people working for major firms who have made it their profession – what chance does anyone else have? The rules – and the constant changing and layering of additional ones on top – are utterly idiotic and shameful.”
And from the Sunday Telegraph of 29 May 2016 we have this reader’s letter.
“How does one establish communication with HM Revenue & Customs? I made a minor error on my tax return and have twice written to the address on the form but have received no reply. When I try the number on the form I am told that no one is available and am not given the opportunity to wait.
I tried the local office in Carlisle. After a long spiel about what to do if I am involved in changes to the Scottish tax system I was cut off. According to the HMRC website, I am not allowed to visit or write to the office.
I appear to have run out of options.”
Having suffered similar experiences in recent months myself I can sympathise with these two writers.
This government, like its predecessors, is obsessed with controlling its citizens and with spending as little on public services as it can get away with. It achieves the former by spewing out new law incessantly. It achieves the latter by cutting the budgets of public service departments, seemingly oblivious to the consequences of those cuts.
Perhaps the government itself would benefit from a lesson in good governance.
WHY 6 APRIL?
Why does the tax year begin on 6 April?
In England and Ireland the new financial year used to start on 25 March, also known as ‘Lady Day’. Along with Midsummer on 24 June, Michaelmas on 29 September and Christmas Day on 25 December, Lady Day was one of the most important days in the religious calendar. All accounts including debts and rents had to be settled by these so-called ‘quarter days’ and Lady Day was the first, gradually becoming regarded as the start of the financial year.
The move forward to 6 April results from changes to the calendar and the actual number of days in the various years. Until 1582 Europe had used the Julian calendar. Under this calendar the year had eleven months with 30 or 31 days and one month, February, with 28 days and, in every fourth year, 29. This worked well for centuries but because it did not align exactly with the solar calendar (the time it takes for the Earth to orbit the sun) problems developed.
The Julian year was only 11.5 minutes longer than the solar year but by the late 1500’s the separation between the two had reached ten days. The Roman Catholic church was especially concerned because the celebration of Easter had been gradually getting later. So in 1582 Pope Gregory XIII instituted a change. Three leap days were omitted every 400 years. The new calendar, called the Gregorian calendar, was adopted by Europe, but England, with its history of conflict with the Roman Catholic church stuck with the Julian calendar.
By 1752, when it was eleven days out of alignment with the rest of Europe, England finally accepted that it would have to make a change. The decision was made to drop eleven days from the month of September. That year 2 September was followed by 14 September. To ensure there was no loss of tax revenues the Treasury extended the 1752 tax year by adding on the eleven days at the end. Consequently the beginning of the 1753 tax year moved to 5 April.
In 1800 a further adjustment of one day was made to mitigate the difference between the Julian and Gregorian calendars. 6 April has remained the start of the tax ever since.
Most developed countries have year ends of 31 March or 31 December. Having a year end which is not co-terminous with those of other modern economies causes some inconvenience for UK taxpayers who have foreign interests. Alas, such is the insignificance of this matter on the scale of things that need to be fixed it is unlikely anything is going to change soon.
MAKING TAX DIGITAL
In my May newsletter I alerted you to the imminent government consultation on making tax digital and suggested you consider making a contribution to the debate.
Where is the consultation? We were promised it would be with us in the spring.
The answer is the EU referendum got in the way. Anxious to do nothing to upset voters the government and the EU for that matter stopped doing anything controversial several months ago.
Prepare for a deluge of all the postponed, unpopular stuff soon.
NOT SO HAPPY CAMPERS
Sherlock Holmes and Dr Watson go on a camping trip, set up their tent and fall asleep. Some hours later, Holmes wakes his faithful friend.
'Watson, look up at the sky and tell me what you see.'
Watson replies, 'I see millions of stars.'
'What does that tell you?'
Watson ponders for a minute. 'Astronomically speaking, it tells me that there are millions of galaxies and potentially billions of planets. Astrologically, it tells me that Saturn is in Leo. Time wise, it appears to be approximately a quarter past three. Theologically, it is evident the Lord is all-powerful and we are small and insignificant. Meteorologically, it seems we will have a beautiful day tomorrow. What does it tell you?’
Holmes is silent for a moment then speaks. 'Watson, you idiot, someone has stolen our tent!'
Copyright: K P Bonney & Co LLP 2016. All rights reserved. No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers. Disclaimer: The publishers have taken all due care in the preparation of this publication. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.
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