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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Private residence relief: settled property: common intention constructive trusts: common intention - practical issues

TCGA92/S225

A practical difficulty with claims under TCGA92/S225 is that often you are considering informal family agreements in which little thought has been given to the detail of the arrangements and still less to their legal effects. Often all the parties will agree it was accepted that the occupier is entitled to live in the property for as long as he or she wanted to. That is just evidence that there was a licence to occupy the property. The parties need to establish that there was a common intention that the occupier would have an interest such as a life interest in the property.

You should consider whether the parties have acted in a way that is consistent with that intention. This is either to test an assertion that there was such an intention or to establish such an intention from the parties’ conduct. For example, how has the ownership of the property been represented to third parties such as banks or mortgage lenders? Have the legal owners made it clear that they own the property subject to an agreement that the occupier has an interest in the property?

What agreement or understanding was there as to what would happen if the property was sold? If the constructive trust was established on or after 1 January 1997 it will be a trust of land for the purposes of the Trusts of Land and Appointment of Trustees Act 1996. The life tenant of a trust of land would be entitled to receive the interest from the investment of the sale proceeds and have similar rights of occupation in any property purchased with the sale monies. If the constructive trust was established before 1997 the tenant for life under the Settled Land Act 1925 would not only have these powers but the power to sell the property.

What agreement or understanding was there as to what would happen if the legal owner or occupier died? If the legal owner dies the trust continues and the property is not part of his or her estate. See CG65428 if the occupier dies and the property is sold by the legal owners after their death.