In 1997, Mr and Mrs Phillips purchased a house with a 0.94 hectare garden. In 2014 a housing developer sought to develop the adjoining fields and Mr and Mrs Phillips decided to sell their property to the developer. Mr and Mrs Phillips did not submit a declaration for Capital Gains Tax (“CGT”) purposes because the property was their principal private residence.
In 2017, HMRC identified that the garden was larger than the size specified in law (0.5 hectares) as being automatically exempt from CGT under principal private residence relief (“PPR relief”) rules. If a garden is larger than this, it is necessary to prove that the larger area is required “for the reasonable enjoyment” of the residence. HMRC issued CGT discovery assessments to Mr and Mrs Phillips, claiming £162,820 CGT on the part of the sale proceeds apportioned to the additional 0.44 hectares of the garden.
Mr and Mrs Phillips appealed to the First-tier Tax Tribunal.
The Tribunal analysed the requirements for reasonable enjoyment by considering similar properties, the location of Mr and Mrs Phillips’ property, and all other relevant facts. The rural location of the property played an important role.
The Tribunal held that the entire 0.94 hectare garden was necessary for the reasonable enjoyment of the property and therefore qualified for PPR relief. It is often the case that rural properties have larger gardens and HMRC was not permitted to take advantage of this for the sake of claiming additional CGT. The Tribunal therefore rejected HMRC’s CGT claim in its entirety.
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