A recent case in the First Tier Tribunal has highlighted a problem which comes as a nasty surprise to some. As is well known, if you dispose of your “only or main residence” then, for Capital Gains Tax purposes, an exemption applies and the gains made on the sale of your house are normally tax free. The exemption applies to the property itself and the “permitted area” of garden or grounds. What is is less well known is that this permitted area is limited to 0.5ha unless the taxpayer can show that a larger area is “required for the reasonable enjoyment” of the house “having regard to the size and character” of it.

In the case of Phillips v HMRC taxpayers who had liven in a house in Bentley Heath, near Solihull for over 15 years, had the opportunity of selling it to Crest Nicholson, the housebuilders. The sale netted a good profit because the gardens of the property extended to 0.94ha (2.3 acres) in an area ripe for development. However, HMRC subsequently picked up the transaction as part of Stamp Duty checks and decided that the property was not of a size that needed such a large garden, landing Mr & Mrs Phillips with a CGT bill of £162,820 each. They protested, of course, but it did not help that Crest Nicholson, who wanted only the land, but not the house, then sold it on with only 0.1ha of garden attached. After hearing extensive evidence, however, about the rural nature of the location when Mr & Mrs Phillips moved in, the “natural boundary” of a line of trees round the garden and the relative size of gardens at comparable properties in the area, the FTT ruled in favour of the taxpayers, who were doubtless very relieved!