When a man inherited a property, he and his wife rented it out and later put it on the market for sale. In May 2010, they exchanged contracts for sale. They moved into the property at the end of June that year and lived in it for nearly a month, moving out again on 22 July in advance of the completion of the sale on 23 July.

Their accountant advised them that they could claim principal private residence (PPR) relief for Capital Gains Tax (CGT) for the last three years of ownership because they had lived in it as their principal residence before sale.

However, the accountant was wrong. Leaving aside the question of the legitimacy of the claim for PPR relief based on such a short period of actual occupancy while the sale was in progress, the effective date of disposal for CGT is the date of exchange of contracts on a property, not the date of completion.

When HM Revenue and Customs discovered the error, they raised an assessment for CGT and imposed a penalty on the couple for carelessness in completing their tax return. The penalty and interest together exceeded £23,000.

The couple accepted that the tax advice was incorrect and that the assessed CGT was due. However, they disputed the penalty because they had relied on professional advice.

The First-tier Tribunal (FTT) accepted their argument. It ruled that the couple had taken reasonable care to avoid inaccuracy in their returns by taking professional advice.