In Desmond Higgins v HMRC [2019] EWCA Civ 1860, the Court of Appeal (CoA) has decided that the date of acquisition of an off-plan property for the purpose of Capital Gains Tax (CGT) Private Residence Relief was the date of completion, and not at exchange of contracts.
- The taxpayer (DH) paid a reservation deposit for an apartment in London off-plan in 2004.
- He did not enter a formal contract for sale until October 2006. At that time construction still had not started. A 10% deposit was paid.
- Due to the effects of the 2008 financial crisis, building was delayed and completion did not occur until 5 January 2010.
- DH sold the property in 2012 making a capital gain before relief of approximately £640,000 and claimed Private Residence Relief (PRR) on the full gain.
- DH owned no other residence between July 2007 and January 2010. Until completion he stayed with family, travelled and stayed in another apartment he owned, none of which were a main residence.
- HMRC denied full PRR on the basis that the property was acquired in 2006 but not occupied.
The taxpayer appealed HMRC's interpretation of the Date of Disposal for CGT.
The First Tier Tribunal (FTT) decided that the date of ownership for PRR was the date of completion, this was overturned by the Upper Tribunal who decided it was the date of exchange of contracts.
The CoA noted that:
- If HMRC's argument was correct and the date of ownership ran from the date of exchange of contracts few people buying a new home would be able to claim PRR for the period between exchange of contracts and completion.
- Although s28 of the TCGA confirms that the "period of ownership" of a dwelling-house runs from the date of the contract for its purchase, s222 and 223 do not refer to section 28.
- The mere fact that someone has contracted to buy a property will not give him "ownership" such as could allow him to possess, occupy or even use the property, let alone to make it his "only or main residence".
The COA allowed the appeal, concluding that date of ownership for PRR must be the date of completion.
Comment
PRR was introduced over fifty years ago. Who would ever have thought that it would have been so difficult to decide the date on which a home is acquired for the purposes of the relief?
Links
CGT Private Residence Relief (PRR)
What is Private Residence relief (PRR)? How do you claim PRR? What restrictions apply?
Date of disposal and CGT
When is the date of acquisition or disposal of an asset for Capital Gains tax purposes? When do special rules apply? Why does it matter?
External links
Desmond Higgins v HMRC [2019] EWCA Civ 1860