Principal Private Residence Relief (PPRR) dispute: Reducing a £200,000 liability to £5,000

Case study overview

• Issue: HMRC enquiry involving property disposals, self-employment income and bank interest, with HMRC challenging the availability of Principal Private Residence Relief (PPRR)
• Strategy: five years of financial records reconstructed from incomplete information and a comprehensive disclosure submitted to HMRC
• Outcome: PPRR accepted in full and no penalties charged
• Total liability reduction: reduced exposure from more than £200,000 to approximately £5,000
• Time to resolution: within a matter of months

Our client approached inTAX after receiving correspondence from HMRC regarding potential discrepancies in his tax affairs.

The client had multiple sources of income spread across a number of years, including self-employment income, bank interest and gains arising from property disposals.

The errors were not deliberate. A misunderstanding between the client and his accountant had resulted in certain income being reported incorrectly, while incomplete records made it difficult to establish the exact position.

What did the client do first?

As HMRC’s enquiries progressed, our client’s situation became increasingly stressful.

By the time they instructed inTAX, they were facing potential liabilities exceeding £200,000, alongside penalties and a prolonged dispute with HMRC.

The uncertainty had become overwhelming, impacting both their financial position and personal wellbeing.

While the client’s accountant had engaged extensively with HMRC, the matter had become progressively more entrenched.

HMRC had formed the view that our client was not entitled to PPRR on two property disposals and had also understated the amount of allowable expenditure that could be offset against taxable income.

What was inTAX’s approach?

Firstly, we outline the core issues our client was facing:

• Principal Private Residence Relief: The most significant issue was HMRC’s belief that various property disposals did not qualify for PPRR
• Multiple income sources: HMRC had raised concerns over self-employment income and bank interest across several years
• Incomplete financial records: Our client did not keep entirely complete books and records for the years under review, requiring a substantial reconstruction exercise
• Penalty risk: Without specialist intervention, the enquiry risked escalating into allegations of serious non-compliance, with exposure to substantial penalties and reputational fallout

To begin, inTAX worked alongside our client’s accountant to conduct a detailed review of bank transactions from 2019/20 to 2023/24.

This process involved identifying taxable income, separating personal transfers and non-taxable receipts and identifying previously unclaimed expenses.

After reconstructing our client’s financial affairs across five tax years, inTAX could undertake a meticulous review of PPRR eligibility and occupation history.

It quickly became apparent that the properties had genuinely been occupied as the client’s principal private residences.

inTAX therefore undertook a project to gather concurrent documentary evidence capable of demonstrating to HMRC that our client qualified for the relief.

The next step was to prepare and submit a technical disclosure to HMRC, including revised tax calculations, correct tax return information and an explanation of why there were inaccuracies in the first place, with the aim of demonstrating PPRR eligibility.

What was the outcome?

By engaging proactively, making a complete disclosure and explaining the causes of the inaccuracies, inTAX successfully argued that HMRC should not seek penalties.

Any potential suspended penalty position was ultimately resolved with no financial penalties being charged, and the matter was resolved within months.

PPRR was accepted in full and HMRC conceded that property disposals did not constitute trading activity, eliminating liabilities exceeding £150,000.

A combination of technical analysis, evidential review and strategic engagement with HMRC allowed inTAX to reduce our client’s exposure from more than £200,000 plus interest and penalties to approximately £5,000.

Our client was also removed from direct engagement with HMRC throughout the process, bringing an end to a protracted period of uncertainty, stress and anxiety.

Why was specialist tax dispute advice so important?

Our client’s accountant had already spent considerable time corresponding with HMRC before inTAX became involved.

However, the dispute had reached a point where specialist tax investigation expertise was required.

Success often depends upon understanding HMRC’s decision-making process, gathering persuasive evidence and challenging technical assumptions that may have become entrenched during an enquiry.

While the reconstruction of five years of financial information was important, the most significant benefit arose from successfully defending the client’s entitlement to PPRR and eliminating penalties.

What are the key lessons from this case?

This case demonstrates the importance of properly testing HMRC’s conclusion and ensuring matters are resolved on the correct legal and factual basis.

Most taxpayers facing an HMRC enquiry do not know whether HMRC’s assumptions are correct, what evidence is required to support their position or how to challenge an entrenched view.

Specialist dispute expertise can fundamentally change the outcome by reducing liabilities and bringing certainty back to the taxpayer.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email info@inTAXltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients.