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My client’s house is surrounded by farmland. Access is along a lane about a quarter of a mile long with another property owned by a third party about halfway between my client’s house and the main public road.
My client has a right of way along this track, but it is not used by the farmer and my client has agreed in principle to buy it from him. A right of way may be granted to the other property owner or they may construct their own access to the main road.
Can readers let me know whether the cost of buying the lane will be part of the only or main residence exemption on any future sale of the house or is this a separate asset?
Query 19,845 – Willow.
Will the lane be treated as part of the grounds?
The only or main residence exemption in TCGA 1992, s 222(1) applies to the sale of a property together with its garden and grounds. A track would fall within this exemption if it was part of the garden and grounds; in other words, if it led to the main road through the garden or grounds. However, it appears in Willow’s case that the track goes from the client’s house to the main road through farmland which the client does not own. There is no prospect of this track being seen as part of the property.
If Willow’s client sells the house with the track, then this will be treated as the disposal of two separate assets for capital gains tax purposes. If the consideration for each asset is not specified in the sale contract, then it will need to be apportioned between the assets on a just and reasonable basis (TCGA 1992, s 52(4)).
If Willow’s client sells a right of way along the track without selling the track itself, then this will be subject to capital gains tax under TCGA 1992, s 22, as a capital sum derived from an asset. There is guidance on this in HMRC’s Capital Gains Manual at CG12945. – ANA.
Has enhancement expenditure been incurred on the right of way?
Willow’s client currently has only a legal ‘right of way’ along the driveway leading to his main residence, but has agreed in principle to buy the driveway from the current owner.
To advise Willow whether the cost of buying the lane will be part of the only or main residence exemption on any future sale of the house we need to look at the specific wording of the legislation and subsequent case law surrounding this. TCGA 1992, s 222 ‘…applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in … land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area’.
Given that the driveway is land that he is using for enjoyment of the residence, I see no reason why it should not be included with the property notwithstanding that it was purchased at a subsequent time in a separate transaction. When Willow’s clients bought the house, part of the purchase cost would have been to pay for the ‘right of way’ to cross the farmer’s land. By purchasing the driveway himself, in my opinion, Willow’s client has incurred enhancement expenditure on the existing right of way to cross the land. Further, in HMRC’s RI 119 (August 1995) Capital gains tax: private residence relief-garden or grounds it is made clear that ‘in general, the Revenue accepts that land surrounding the residence and in the same ownership is the grounds of the residence, unless it is used for some other purpose.’
Further, the focus of the garden and grounds provisions is how the land is used at disposal not throughout the ownership of the property. Although the main residence provisions speak of how the dwelling has been used in the past, the garden and grounds provisions focus on what was evident at the date of disposal. From RI 119: ‘The use of land other than at the date of disposal is irrelevant’.
The next issue is whether it is within the permitted area. Although there are no details on the size of the driveway or the land in Willow’s submission, on the assumption that the property including the driveway is larger than the permitted area and therefore bigger than a half a hectare, we need to turn to case law to establish whether a driveway could be seen as being an area ‘required for the reasonable enjoyment of the dwelling-house… as a residence, having regard to the size and character of the dwelling-house…’. The driveway therefore, needs to be in the curtilage and appurtenant to the dwelling house and also required.
In the case of Methuen-Campbell v Walters Buckley LJ said (with my italics): ‘In my judgment, for one corporeal hereditament to fall within the curtilage of another, the former must be so intimately associated with the latter as to lead to the conclusion that the former in truth forms part and parcel of the latter. … This may extend to ancillary buildings, structures or areas such as outhouses, a garage, a driveway, a garden and so forth.’
Driveways can therefore be in the curtilage to and appurtenant to the dwelling. In addition, in the judgment in Re Newhill Compulsory Purchase Order 1937 [1938] 2 AER 163 and also cited in Longson v Baker [2001] STC 6, the phrase ‘land … required for the amenity or convenience of any house’, was clarified as: '“Required” means, I suppose, that without it there will be such a substantial deprivation of amenities or convenience that a real injury will be done to the property owner, and a question like that is obviously a question of fact.’
In summary then, I would say that the purchase of the driveway would be enhancement expenditure of an asset already held by the client, which is the ‘right of way’ over the land. If the driveway is not within the half a hectare garden and grounds, it is likely that the client could argue that it is required for the amenity or convenience of the house because it would be impossible to reach the house without it. – 30metresunder.
Consideration will have to be given to the statutory definition of ‘grounds’.
The only or main residence relief for private dwellings extends to land that the individual has for his own occupation and enjoyment with the residence as its garden or grounds, up to the permitted area of half a hectare (TCGA 1992, s 222). HMRC confirms that land acquired at a later date to the residence may be accepted as part of the garden and grounds if it was brought into use as such (CG64360). It is also understood that the words ‘occupation and enjoyment’ are interpreted by HMRC in the legal sense of possession of the land without contested claims.
The question is therefore whether a strip of land consisting of a track running up to the house would count as ‘grounds.’ Since there is no statutory definition of ‘grounds’, tribunal judges have reached for their dictionaries. In Mr and Mrs Fountain (TC4596) the Oxford Dictionaries website definition of grounds was quoted: ‘an area of enclosed land surrounding a large house or other building.’ A lane or track does not readily fit this definition and would not therefore seem to attract main residence relief on a subsequent disposal. On such a disposal, the sale proceeds would then need to be apportioned between the eligible and ineligible parts of the house and its gardens and grounds. – Mr B.
