CAPITAL GAINS TAX - 13.11.2019

Court of Appeal rules on off-plan homes capital gains

Private residence relief

Usually, if you sell your home for more than you paid for it capital gains tax (CGT) private residence relief (PRR) prevents you from having to pay tax on the gain. But if the property hasn’t been your “only or main residence” for the whole time, the PRR might be proportionately reduced leaving some of the gain liable to CGT. In Higgins v HMRC 2019 the effects on PRR of a delay in occupying a property which had been bought off-plan were considered.

For detailed commentary on the terms of PRR, visit http://tipsandadvice-tax.co.uk/download (TX 20.04.06).

The Upper Tribunal’s decision

In 2018 we reported on the Upper Tribunal’s logic-defying ruling that the period during which a property was being constructed, having been purchased off plan, counted as the ownership of a residence ( yr.19, iss.4, pg.4 , see The next step ). The effect was to cause a reduction in the PRR Higgins (H) was entitled to. This was significant because the period between when the off-plan contract was signed and when the property was fit to occupy was a long one. H took his case to the Court of Appeal (CA).

The facts

The key dates for the CA to consider were:

• in October 2006 H entered into a contract to lease an apartment. The building already existed but the apartment had to be constructed within it
• construction started in November 2009 and the apartment was substantially completed the following month
• H had no right to occupy the apartment before 5 January 2010
• H occupied the apartment as his main residence from then until 5 January 2012
• in December 2011 he signed a contract to sell.

Arguments and decision

Interestingly, HMRC didn’t reassert the Tribunal’s earlier decision but instead suggested that while short periods between exchanging contracts and completing a purchase of a home were OK, long ones were not. To illustrate this HMRC came up with a far-fetched scheme as an example of how a taxpayer could use this to manipulate PRR.

The CA overturned the Tribunal’s decision because it had misinterpreted the PRR legislation in a way that clearly defeated its purpose, which is to prevent a tax charge on capital gains derived from the sale of a person’s home. It also rejected HMRC’s argument as irrelevant and in no way indicated by the wording of the legislation.

What next?

We don’t expect HMRC to appeal against the ruling to the Supreme Court but it might ask the government to tighten the rules to prevent abuse of PRR. However, in genuine off-plan purchases or other situations where there’s a long delay between exchange of contracts and completion we think it’s safe for you to rely on the CA’s decision. Tip. If you have paid CGT on the sale of your home based on the Upper Tribunal’s rules, you should make a claim for repayment.

For a previous article on the case, visit http://tipsandadvice-tax.co.uk/download (TX 20.04.06).