Are you looking to sell part of your home’s garden for development? Take note and proceed with caution!
The First Tier Tribunal case of Nunn v HMRC (March 2024) considers the availability of Principal Private Residence (PPR) relief from Capital Gains Tax and highlights a number of important considerations.
In this case, Mr Nunn sold off part of his garden to a developer to build two houses, for an agreed fixed price of £295,000. Heads of Terms were agreed, planning was granted, but for various reasons there was a delay to the exchange of contracts. Due to good weather conditions, the developer was keen to make progress on the works and so sent a letter to Mr Nunn saying that they had agreed to a contract to start work before exchange of contracts and asked Mr Nunn to sign and return the letter, which he duly did.
Mr Nunn claimed PPR relief on the disposal of the garden land, which fell within the "permitted area" (for the purposes of TCGA 1992), which HMRC disallowed on the basis that when the exchange of contracts for sale took place, the garden land was no longer part of his residence, due to the commencement of the works.
The First Tier Tribunal found in favour of Mr Nunn on the basis that he had made a deemed disposal of the property on the date he signed the letter referred to above, as it was considered that it had triggered “an appropriation to trading stock” on that day. In other words, the property was no longer a part of his residence and became “stock” or “trade” when he signed the letter, which he then proceeded to sell.
Whilst this decision is not binding authority, it does provide some useful commentary on the likelihood of a successful PPR claim on the sale of a garden. The Tribunal set out three scenarios:
The Tribunal considered the facts of this case fell within the second scenario. This appears to be a rather generous approach from the Tribunal, given that the facts showed there was no sharing of profits. Therefore, it would not be surprising if this decision is subject to appeal by HMRC.
Practically, it would be prudent to err on the side of caution in similar situations and not to assume that a deemed disposal by way of appropriation to trading stock will be accepted by the Tribunal and to therefore postpone the commencement of works on the garden land until exchange of contracts has taken place.
If you have any questions relating to this case, or if you would like to find out more information, please contact Jan Tyler at [javascript protected email address].
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