In HMRC v Desmond Higgins [2018] UKUT 280, the Upper Tribunal (UT) found that the period between exchange and completion of an off-plan property acquisition could not be ignored and would not get private residence relief.

  • The taxpayer (DH) paid a reservation deposit for an apartment in London off-plan, i.e. before it was completed, in 2004.
  • DH did not enter into the formal contract for sale until October 2006. At that time construction still had not started. A 10% deposit at or before this date of exchange was required and was paid.
  • A further 10% deposit was made on March 2007.
  • The building works were delayed significantly, did not commence until November 2009, and completion occurred on 5 January 2010.
  • DH exchanged on the sale of the apartment in December 2011 and completed in January 2012 making a capital gain before relief of approximately £640,000.
  • DH had another residence until July 2007 and until completion stayed with family, travelled, and stayed in another apartment he owned, none of which were a main residence.
  • DH claimed full PRR relief on the sale.

HMRC refused Private Residence Relief (PRR) for the period prior to 5 January 2010, when DH moved in. DH appealed and the First-Tier Tribunal found for DH that the period of ownership for PRR purposes could not start until DH had a right to occupy the property. In this case, it could not happen until completion.

HMRC appealed this decision to the UT. The UT found as follows:

  • The gain realised on the disposal of an asset is the difference between the acquisition cost and disposal proceeds. The figures are determined when the unconditional contracts are exchanged.
  • The gain that is potentially taxable accrues over that period. The gain does not arise only in respect of the period in which the property is the taxpayer’s only or main residence.
  • Some of this time over which the gain arises is before the dwelling is constructed and when it is clearly not capable of being the taxpayer’s main residence.
  • The existence of Extra Statutory Concession D49 is not HMRC accepting that its interpretation of the law on PRR gives rise to absurd or perverse results. The concession does not apply to this scenario in any case, i.e. to a delay between exchange and completion.
  • Whilst true there would be no need for HMRC practice to deviate from the wording of the law if the period of ownership cannot start until completion, the wording of the law and HMRC’s interpretation of it is consistent with Parliamentary intention. Relief should be restricted where a dwelling has not been a main residence throughout the period during which the gain arises.
  • From the date of the second deposit payment, in March 2007, which was before completion, the taxpayer had the right to dispose of the property by way of a sub-sale. If he would have disposed of it before completion, he would have made a capital gain and there would be no question of any PRR.

Based on the above, the UT concluded that the FTT had erred in law and allowed HMRC’s appeal. The period of ownership commenced from the date of exchange and at that time the property did not qualify as DH’s main residence for PRR purposes.

Links

CGT Private Residence Relief (PRR)

PRR: offplan purchase (FTT case)

External link HMRC v Desmond Higgins [2018] UKUT 280