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May 1, 2021

Where Do I Begin? – Recent Ruling on the Date Private Residence Relief Applies From for Off Plan Property

Private residence relief (PRR) provides relief from capital gains tax (CGT) on disposals of property that are used as your main residence. In the recent case of Higgins v HMRC, the Court of Appeal (CoP) determined that, for the purposes of applying PRR, the date of acquisition was the date of completion.

This decision overturns the previous ruling that PRR applies from the date that the contract was signed.

Why is this Important?

In the majority of house purchases there is a delay between the exchange of contracts and completion, with the purchaser only being able to occupy the property from the later date. The previous ruling left a question mark over how PRR would apply to this period, however this decision provides some certainty on the relief that may be obtained.

The Facts

  • In October 2006, Mr Higgins entered into a contract to purchase an apartment in a development. At that time, the development works had not yet commenced. The apartment was identified on the plans but did not yet exist.
  • Construction was delayed, and Mr Higgins had no right to access the building until late 2009. Completion took place on 5 January 2010 and Mr Higgins occupied the apartment as his main residence from this date until it was sold, for approx. £640,000.
  • Mr Higgins claimed entitlement to full relief from CGT on the basis that the apartment was his main residence throughout his period of ownership. HMRC refused the claim.

The Cases

The First Tier Tribunal initially ruled in favour of the taxpayer, allowing the appeal, and finding that the period of ownership should be given its ordinary meaning, and should commence on the date that the purchase was physically and legally completed. On this basis, PRR applied for the full period of ownership, as the taxpayer used the property as their main residence during this time.

The Upper Tribunal overturned the decision, holding that the period of ownership commenced when the contract was signed in October 2006. This meant that a large period of the ownership did not qualify for PRR as the taxpayer was unable to occupy the property whilst it was under construction, resulting in CGT for the taxpayer.

The Decision 

The matter was brought to the CoA, who noted that ifHMRC's treatment was correct, few people buying a new home would be able to claim PRR on the period between the exchange of contracts and completion. The CoA overturned the decision of the Upper Tribunal, and allowed the taxpayers appeal.

If you require advice/assistance determining your tax position when disposing of property and applying relevant tax reliefs (including PRR), please contact us.

Related Articles 

It’s What You Know – Private Residence Relief & Evidence of Intention (9 August 2019)

Off-Plan Tax Trap: PPR Relief & “Period of Ownership” (25 October 2018)

Open to Interpretation – Relief on Sale of Main Residence (16 August 2018)

Contact us today to discuss your tax requirements.
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