The problem.
A family approached us through their accountant facing a significant Capital Gains Tax exposure on the sale of a residential property. The parents had purchased a commercial building in 2012, converted it to residential use, and held the legal title throughout, but had never lived there. Their daughter had moved in on completion of the conversion in 2014 and had occupied it continuously as her only home ever since.
On the face of it, neither party could claim relief. The parents had never occupied the property, so private residence relief was unavailable to them, and a sale would crystallise a substantial gain on the full increase in value since 2012. The daughter, who had genuinely treated the property as her home for over a decade, held no legal title and appeared to hold no interest that would qualify her for relief. To complicate matters, her monthly payments had historically been declared as rental income, which pointed towards a landlord and tenant relationship rather than ownership.
Our solution.
We analysed whether the daughter could be treated as the beneficial owner of the property from 2014 under a common intention constructive trust, applying the principles established by the Supreme Court in Jones v Kernott. The facts strongly supported this, most notably her repayment of the entire outstanding mortgage capital in 2020, a step no ordinary tenant would ever take.
Building on that foundation, we set out how a properly evidenced beneficial interest would constitute an interest in the dwelling for the purposes of the legislation, allowing the daughter to claim private residence relief for her full period of occupation. We further applied the Upper Tribunal decision in Lee and Lee to establish that the period of ownership ran only from completion of the conversion in 2014, while preserving the full original acquisition and conversion costs as allowable base cost. The result was a route to eliminate the entire chargeable gain.
We set out the supporting evidence required, identified the legal steps that needed a solicitor, and gave a candid assessment of the risks so the family could proceed on a fully informed and defensible basis.