This article was first published by Lexis®PSL on 15 November 2021.

Private Client analysis: This case involved an appeal against the denial by HMRC of private residence relief (PRR) from capital gains tax on the gain made on the sale of an ancillary dwelling (‘Benko’), which formed part of Mr Crippin’s main residence (Loaningdale), to his partner Ms McKean. While the First- tier Tribunal (FTT) agreed with HMRC that Benko was a dwelling-house in its own right, it decided that this did not prevent it from being part of the dwelling-house that was Mr Crippin’s main residence. The FTT noted that Benko had been marketed for holiday lets but as this was within the last 36 months of the final period of ownership Mr Crippin was entitled to PRR.

Crippin v Revenue and Customs Commissioners [2021] UKFTT 351 (TC)

What are the practical implications of this case?

There have been a number of cases recently where taxpayers have argued, for stamp duty land tax purposes, multiple dwellings relief. This case does not follow this line but examines when two properties can be considered as one for PRR to apply and the extent of ‘main residence’ for the purposes of capital gains tax. On the facts of this case it was accepted that the separate dwelling was part of the main house but that the main issue here was whether it had been used by Mr Crippin as his only or main residence. Interestingly, the FTT seemed to have decided on the facts of this case that PRR would apply to Benko during the period when Benko was occupied by someone else other than Mr Crippin but not during the time Benko was being marketed for holiday lettings even though the property was being used by Mr Crippin and his family. There was also scope for an argument under section 223B of the Taxation of Chargeable Gains Act 1992 (TCGA 1992)—additional relief for where part of a private residence is let out for residential accommodation while occupied by the owner as his only or main residence. Neither the FTT nor the parties considered this point.

What was the background?

In 2006, Mr Crippin purchased in his sole name a property in Scotland comprising of a dwelling-house (Loaningdale) and an adjacent ‘annex’, which he and his family occupied as the family home. Mr Crippin later applied for and was granted planning permission to turn the annex into a three bedroom flat with a kitchen and bathroom, later known as Benko. Benko could be accessed through a separate entrance or via a first floor balcony shared with Loaningdale. It was also used as a storage space by the family.

Over the years Benko was used by him and his family and informally by their extended family and friends.

Following a dispute with the council, Benko’s usage was changed from ‘ancillary accommodation’ to an ‘independent flatted accommodation’.

Mr Crippin sold Benko to Ms McKean in January 2013 but did not report the disposal on his self-assessment tax return. HMRC enquired of the disposal and denied his claim for PRR on the basis that the flat was a separate dwelling and had been let out.

Mr Crippin appealed the decision on the basis that:

  • he was entitled to relief from capital gains tax under TCGA 1992, s 222 because Benko was part of a dwelling house that was his only or main residence; and/or
  • Ms McKean had a beneficial interest in Benko

What did the court decide?

The FTT accepted (as in Lewis (Inspector of Taxes) v Rook [1992] STC 171) that a dwelling-house may consist of more than one building even if the latter was itself a separate dwelling house. The question for the FTT here was whether Benko, which is ‘appurtenant’ to and ‘within the curtilage’ of Loaningdale, was part of the dwelling-house that had been Mr Crippin’s only or main residence at any time during the period in which he owned it.

On the evidence (lack of any formal arrangements when friends and family were allowed to stay, the family’s unrestricted access to Benko and the family’s possessions remaining there) the FTT found that Benko was part of a dwelling-house that had been Mr Crippin’s only or main residence until its use as a holiday let started (between October 2012 and its sale on 23 January 2013). During this period Benko was not Mr Crippin’s only or main residence. However, as this period fell within the last 36 months of the period of ownership, Mr Crippin was entitled to relief under TCGA 1992, s 223.

The FTT also considered Mr Crippin’s alternative argument that Ms McKean had obtained a beneficial interest in Benko. The FTT held that as the property was situated in Scotland and in Mr Crippin’s sole name, Scottish property law would apply, which does not distinguish between legal and beneficial interests in property. It was held that as Ms McKean did not hold legal title to Benko she could not have held any beneficial interest in it.

Case details

  • Court: First-tier Tribunal (Tax Chamber)
  • Judges: Judge John Brooks and Elizabeth Bridge
  • Date of judgment: 28 September 2021