The Commissioners for HMRC v Gerald Lee

For private residence relief under Taxation of Chargeable Gains Act 1992, the unqualified expression “period of ownership” in section 223 refers to ownership of the dwelling-house, not to prior ownership of bare land on which it was later built. The statutory context consistently focuses on the dwelling-house. A contrary construction cannot be supplied by references to other capital gains provisions, asserted anomalies, possible avoidance, or later legislation where the ordinary meaning is clear.

Accordingly, where taxpayers acquire land, demolish an existing house, construct a new dwelling-house and occupy it as their only or main residence throughout ownership of that dwelling-house, section 223(1) gives full relief for the gain on disposal.

The respondents acquired land in October 2010, demolished the existing house and completed a new house in March 2013. They occupied the new house as their main residence until selling the land, house and grounds in May 2014.

They claimed full private residence relief under sections 222 and 223 of the Taxation of Chargeable Gains Act 1992. HMRC issued closure notices, treating relief as time-apportioned from the acquisition of the land and assessing a chargeable gain of £541,821.

The First-tier Tribunal allowed the taxpayers’ appeal in Gerald Lee and Sarah Lee v HMRC [2022] UKFTT 175 (TC). HMRC appealed. The central issue was whether the denominator in section 223(2) was the ownership period of the newly built dwelling-house or of the land.

1. Appeal dismissed. The First-tier Tribunal correctly held that “period of ownership” in section 223 of the Taxation of Chargeable Gains Act 1992 means the period for which the taxpayer owns the dwelling-house.

2. The immediate statutory context made that construction plain. Section 223 concerns a dwelling-house that has been the individual’s only or main residence, and section 222(1) concerns a gain attributable to an interest in a dwelling-house. There was no contextual reference to a separate asset consisting of the land generally. Ownership of a house in this setting includes the ground on which it stands, but requires that a dwelling-house exists.

3. Sections 222(7) and 222(8) did not require a different result. Their references to interests and job-related accommodation were neutral, or confirmed that the relevant ownership was ownership of the dwelling-house. Comparative provisions elsewhere in the Act could not establish a general rule that the phrase always concerns the asset disposed of regardless of its statutory context.

4. The alleged consequences did not justify departing from the text. The statutory relief applies to the gain on a disposal and apportions it by time; it does not identify separately accruing pre-build gains. Possible differences between demolition and renovation, practical questions about completion, and a possible gap in the anti-avoidance provision in section 224(3) were matters for the legislation’s ordinary operation or for Parliament.

5. Higgins v HMRC [2019] EWCA Civ 1860 did not decide this issue. Its observation about a plot of land was obiter. The Upper Tribunal declined to follow the contrary persuasive reasoning in Henke v HMRC [2006] STC (SCD) 561. Later-enacted section 223ZA could not alter an earlier provision whose meaning was unambiguous.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal was dismissed. The Tribunal upheld the First-tier Tribunal’s construction of section 223 of the Taxation of Chargeable Gains Act 1992.
• First-tier Tribunal: In Gerald Lee and Sarah Lee v HMRC [2022] UKFTT 175 (TC), the taxpayers’ appeal against HMRC’s closure notices was allowed.