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My clients, a married couple, are selling their current home (which is their main residence for CGT purposes) and are looking to move into their new home shortly. However, their new home is in fact two apartments, side by side on the top floor of an apartment block. Despite several attempts, they have been unable to obtain permission to merge the two properties into a single dwelling. Despite this, they intend to proceed with the purchase and live in both properties as one single dwelling.
My clients, a married couple, are selling their current home (which is their main residence for CGT purposes) and are looking to move into their new home shortly. However, their new home is in fact two apartments, side by side on the top floor of an apartment block. Despite several attempts, they have been unable to obtain permission to merge the two properties into a single dwelling. Despite this, they intend to proceed with the purchase and live in both properties as one single dwelling.
My concern is, of course, whether the 'single' dwelling will be eligible for full CGT main residence relief. Naturally, both apartments include a kitchen and a bathroom. The intention is to remove the kitchen from one of the apartments, but to retain both bathrooms.
Readers' views on the likelihood of full relief being successfully obtained on a future disposal are appreciated.
(Query T16,586) — Flatman.
Reply from Vairao
Although the only case in which an attempt to combine a number of flats that has reached the Courts — Honour v Norris [1992] STC 304 — was decided (on appeal) against the taxpayer, Mr Justice Vinelott did make it clear that he was adjudicating on the factual situation then before him and he was not taking a view on whether, in principle, two flats in the same block were incapable of forming a single 'dwelling-house' for the purposes of TCGA 1992, s 222(1)(a).
The Court of Appeal in Lewis v Rook [1992] STC 171 accepted that a subsidiary building could be treated as part of a dwelling-house for this purpose, provided that it formed part of an entity sensibly described as a dwelling-house. This was also formulated by reference to the secondary building needing to be both appurtenant to the main building and within its curtilage. Lord Justice Balcombe stated, furthermore, that the latter test was similar to that of 'close proximity', which had been adopted in both Batey v Wakefield [1981] STC 521 and also in Markey v Saunders [1987] STC 256.
Following Lewis v Rook, the Inland Revenue issued its Tax Bulletin 12 (August 1994), in which the concept of curtilage was emphasised. As is recognised in the Capital Gains Manual at paragraph CG64291, this test cannot really be applied in the case of contiguous or one-above-the-other flats in the same building, for which Inspectors had normally granted only or main residence relief before the Court of Appeal's decision in Lewis v Rook.
The draftsman of the Capital Gains Manual takes the view, in paragraphs CG64305 and CG64309, that each self-contained flat will normally constitute a separate dwelling-house. But paragraph CG64306 concedes that a group of flats may be considered to be a single dwelling-house if all occupied by the same family, within the same block and contiguous. Paragraph CG64308 goes on to contrast this with flats on different floors which are separated by other flats, when relief is only to be conceded in exceptional circumstances.
On the facts postulated, while both flats are prima facie self-contained on the basis of the criteria specified in paragraph CG64310 of the manual, the removal of the kitchen in one of them must put this into question. More importantly, the fact that the flats face each other on the top floor of the building must mean that the factors referred to in paragraph CG64306 should be accepted as present and relief granted provided that the single family occupation test continues to be satisfied.
