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The taxpayer bought a freehold house in 1983 jointly with his mother. In the context of section 226, Taxation of Chargeable Gains Act 1992 the mother was a dependent relative prior to 6 April 1988. The house has been her sole residence throughout and in all respects eligibility for dependent relative relief has been preserved.
The taxpayer bought a freehold house in 1983 jointly with his mother. In the context of section 226, Taxation of Chargeable Gains Act 1992 the mother was a dependent relative prior to 6 April 1988. The house has been her sole residence throughout and in all respects eligibility for dependent relative relief has been preserved. However, the original purchase was one where the respective interests were son 15 per cent, mother 85 per cent. Subsequently the mother sold interests to the son so that by 5 April 1988 the interests were equal. Since that time, the son has brought the remaining interest by several purchases and now has a 100 per cent interest, the mother still being in residence.
If a sale was made now, I do not read the legislation as restricting the relief, but if at 5 April 1988 the interest was 50 per cent it appears fortuitous if the relief applies to the 100 per cent to be sold.
What views are there on this?
(Query T15,901) – Hopeful.
Section 226, Taxation of Chargeable Gains Act 1992 does not address this point. The various acquisitions from the mother would each constitute an 'interest' in (as opposed to a 'part' of) the dwelling for the purposes of section 226(1). The claim, under section 226(2), appears, however, to have to relate only to the dwelling or part occupied. On this basis, the claim appears to be capable of being made for the whole.
On the other hand, the Revenue should be expected to contend for a purposive construction and cite its Capital Gains Manual at paragraph CG65673 as indicative of the fact that the preservation of the relief was confined to persons 'who had incurred the expense' before 5 April 1988.
Furthermore, if the point were to be litigated (and this is hardly likely to be a worthwhile financial bet), one suspects that the courts would not be particularly sympathetic. – WJdeS.
The answer depends on how you interpret section 226(1),Taxation of Chargeable Gains Act 1992. That subsection grants relief to an individual who makes a gain and:
(a) the gain is attributable to the disposal of, or an interest in, a dwelling house or part of a dwelling house, and
(b) that interest in the dwelling house was, on 5 April 1988, or at any earlier time in his period of ownership, the sole residence of a dependent relative of his, and
(c) the dwelling was provided rent free and without any other consideration.
If those conditions are satisfied, the same relief is given as would be given under sections 222 to 224 if the house had been the individual's own only or main residence (ignoring any residence of his own that he may in fact have).
My view is that a plain reading of the section would only grant relief in relation to the gain arising on the disposal of the interest in the house that 'Hopeful's' client held as at 6 April 1988. At that date his interest was 50 per cent only. The legislation would only support 'Hopeful's' interpretation if the words 'or an interest in' were deleted from section 226(1).
The computation of the gain will require that the interests acquired before 6 April 1988 are treated as a separate asset to those interests acquired on or after 6 April 1988. Another way of looking at it is that the 15 per cent share first acquired is the first asset, and each subsequent interest acquired on or before 5 April 1988 is added to the cost of the 15 per cent share as enhancement expenditure, following section 38(2), Taxation of Chargeable Gains Act 1992. The first interest acquired on or after 6 April 1988 should be treated as a separate asset, with subsequent additions being added to the base cost in the same way. The sale proceeds should be apportioned half to the 50 per cent interest that will attract private residence relief, and 50 per cent to the half that will not. – Taxplanet.
Editorial note. Most replies received were not hopeful that the relief would be due in full. All the separate acquisitions of interests are a single fungible asset within section 104, Taxation of Chargeable Gains Act 1992. However, that does not solve the application of section 226 relief which applies to a gain 'so far as attributable' to an interest as therein described. On the wording of section 226(1), there seems to be a reasonable argument in favour of the relief being fully due.
