Tribunal allows taxpayers’ appeals in principal private residence and trading dispute

In R Eyre and another v HMRC [2025] UKFTT 461 (TC), the First-tier Tribunal (FTT) allowed the taxpayers' appeals against HMRC’s decision to assess income tax on the sale of a residential property. The FTT rejected HMRC’s argument that the transaction was an 'adventure in the nature of trade' and found that the property qualified for principal private residence (PPR) relief.

Background

In September 2010, Mr Raymond Charles Eyre and his wife, Mrs Diana Eyre, purchased a property on Burnsall Street, Chelsea, for £9.75 million. The existing building was demolished and replaced with a new residential dwelling, which was completed in July 2013. Mr and Mrs Eyre moved into the property that month and sold it, in February 2014, for £27.15 million.

Mr and Mrs Eyre claimed full PPR relief on the basis that Burnsall Street was their only or main residence during their period of ownership. HMRC issued income tax assessments totalling over £3 million, contending that:

1. the purchase, redevelopment, and sale of the property constituted an adventure in the nature of trade; or
2. alternatively, the property did not qualify for PPR relief as it was never genuinely occupied as a main residence.

Mr and Mrs Eyre appealed the assessments to the FTT.

FTT’s decision

Their appeals were allowed.

Adventure in the nature of trade

With regard to HMRC's first argument, the FTT concluded that the Mr and Mrs Eyre were not engaged in a trading activity. Applying the well-established 'badges of trade' principles set out in Marson v Morton [1986] STC 463, the FTT was satisfied that the property was acquired and redeveloped with the intention of creating a family home, not for resale at a profit. In reaching this conclusion, the FTT noted that:

• there was no pattern of similar transactions which would indicate an on-going trade or business;
• the property transaction was unrelated to the appellants' business of aircraft leasing;
• the financing of the property involved considerable use of personal funds; although it did involve an element of borrowed money, such was common with the majority of property transactions, so this provided no weight to the argument that it indicated the purchase was an 'adventure in the nature of trade';
• the length of ownership and time and energy spent on redevelopment and personalisation of the house was consistent with long-term residential use.

PPR relief

Having weighed up all of the evidence before it, the FTT concluded that Mr and Mrs Eyre occupied Burnsall Street as their main residence from July 2013 until its sale in February 2014, having been able to evidence a "degree of permanence and continuity sufficient to turn mere occupation to residence". Although the period of occupation was relatively short, the FTT accepted the appellants' evidence that they had intended to reside in the property permanently, and that their occupation was both genuine and substantial.

In rejecting HMRC’s challenge to PPR relief, the FTT was persuaded by evidence of domestic living arrangements, including the presence of personal possessions, family use of the property, and integration into local life, as well as evidence that a previous residence owned by Mr and Mrs Eyre was on the market for sale. 

Notably, HMRC did not rely on section 224(3), Taxation of Chargeable Gains Act 1992, which allows it to deny tax relief in circumstances where a property is purchased in order to realise a gain. 

Comment

This decision provides useful guidance on two recurring issues in property tax cases, namely, whether a transaction amounts to trading and whether short-term occupation can attract PPR relief.

The decision reinforces the principle that:

• PPR relief is available where a property is genuinely occupied as a main residence, even for a relatively short period of time; and
• the redevelopment and resale of a property, even at a substantial gain, does not necessarily imply the existence of a trade.

This case also highlights the importance of contemporaneous evidence demonstrating residential intention and use. It illustrates the challenges HMRC can face when attempting to re-characterise property transactions as income-generating trades.

Taxpayers engaged in high-value property development or refurbishment should ensure that the nature of their use and intentions are well documented and consistent with their tax position.

The decision can be viewed here.