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Andrew Nunn v HMRC: Complexities CGT and PRR

Published by Prerana
Posted Date: June 3, 2024 , Modified Date: May 31, 2024

Property transactions can harbour many tax complexities. This has recently been illustrated by Andrew Nunn's legal battle with the HMRC.

In his case, the relationship of Capital Gains Tax (CGT) and Private Residence Relief (PRR) with the issue of property development received intense scrutiny.

What is Private Residence Relief (PRR)?

Private Residence Relief (PRR) is a type of tax relief that exempts people from paying the CGT when selling their property. However, a person needs to meet certain conditions to be eligible for it. These conditions are:

  • You are selling a property that you have lived in as your main home for all the time you have owned it.
  • The property area, including the buildings, garden, and more, is less than 5,000 square meters in total.
  • You have not let part of the home as Furnished Holiday Let (FHL), any service accommodation, or any other rent medium.
  • You have not used any part of your home for business or commercial purposes.
  • You did not buy the property to make a profit or financial gain.

If these conditions are applicable to you, you will not have to pay any amount of Capital Gains Tax (CGT) when selling the property. However, there are other additional conditions that can affect your PRR calculation.

Facts of the Case

Andrew Nunn sold a part of his garden to a developer, Michael Daly acting on behalf of a company named M.A. Daly Building Contractors Ltd. The building work started even before the sale process was complete. This created complications for both the HMRC and the First Tier Tribunal to decide on the disposal date and whether Mr Daly was eligible for the PRR.

In 2016, Mr Nunn entered into an agreement to sell a portion of his garden to property developer Mr Daly for £295,000. Initially, £195,000 was paid upon the completion of the land sale, with an additional £100,000 due upon the completion of the sale of the second house to be constructed on the land.

Timeline of the Case (Nunn v HMRC)

With planning permission secured, Mr Daly’s firm began work before the formal conveyance of the land based on a loosely worded contract dated 2 June 2016. This was done so that the firm could make progress on the project while the weather remained favourable. The actual sale contract for the land was eventually signed and completed on 7 September 2016. By this time, the land had been fenced off, and construction had reached the second floor.

Upon submitting his 2016/17 Self Assessment Tax Return on 9 January 2018, Mr Nunn declared sale proceeds of £195,000. He also claimed allowable costs of £222,000.00, resulting in a reported loss of £27,220.00.

What Were the Resulting Complications?

The narrative unfolds with Mr Nunn's decision to sell a section of his garden to property developer Mr Daly. At first, the transaction seemed simple. However, it soon turned complicated due to the disposal date of the property.

According to Section 222 of the Taxation of Chargeable Gains Act (TCGA), 1992, “land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.” However, the dispute regarding the disposal date arose due to this portion of Section 28 TCGA worded, “…where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).

So, under Section 28 of the TCGA, the disposal date of the property would be 2 June. However, the HMRC argues that the disposal date should reflect the disposal of the entire beneficial interest in the asset, claiming the date to be 7 September. HMRC backed its decision based on decisions in the cases of Lee v HMRC and Underwood v HMRC.

The First Tier Tribunal's Verdict

In a legal clash that many could consider as epic as the fight between David and Goliath, the First Tier Tribunal (FTT) meticulously evaluated the argument of both sides arguments and examined the nature of the 2 June agreement and its implications on CGT and PRR eligibility.

The First Tier Tribunal's Verdict (Andrew Nunn v HMRC)

The FTT's Findings:

  • Nature of the 2 June Agreement - Contrary to Mr. Nunn's assertions, the FTT deemed the agreement as a development commencement, not a formal sale contract. This stance undercut Mr. Nunn's claim of constructive trust.
  • Date of Disposal for CGT - Aligning with HMRC's stance, the FTT concurred that the disposal date for CGT purposes should be 7 September - the formal land sale contract date. However, a twist emerged.
  • Commencement of Trade - Delving deeper, the FTT unearthed Mr. Nunn's unintentional entry into property development. Permitting Mr Daly to commence development inadvertently initiated a venture akin to trade, triggering a recalibration of the disposal date to 2 June.
  • Application of PRR - As the 2 June disposal date coincided with the period when the land was part of Mr Nunn's residence, PRR was deemed applicable, shielding against CGT liability.

Ultimately, the judge agreed with Mr Nunn, making him eligible for PRR and exempt from CGT.


With the Private Residence Relief (PRR), a UK taxpayer can avoid paying the Capital Gains Tax while selling his/her property. PRR relief is a contentious topic in the UK property taxation sector. In this case, Mr Nunn and HMRC were in dispute due to the confusing timeline for the disposal of the taxpayer’s property.

Even though HMRC had valid points of argument in the case, the First Tier Tribunal judge decided to side with Mr Nunn. This led to him being eligible for PRR and successfully exempted from paying the £72,633.80 CGT.

Andrew Nunn v HMRC serves as a cautionary tale for property owners. The distinction between a garden sale and a development venture can be subtle, yet the tax implications can be profound. This case underscores the importance of clear documentation and legal counsel in navigating tax complexities.

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