CGT and off-plan purchases- common sense prevails
21 November 2019
In the Desmond Higgins case, the Court of Appeal recently ruled (in favour of the taxpayer) that the period of ownership of a property for the purposes of capital gains tax (CGT) Principal Private Residence (PPR) relief began on the completion date of the purchase.
HMRC had contended that the period of ownership for PPR purposes should run from the date of exchange of contracts (over three years earlier), despite the fact that the property was bought off-plan and not occupied until the completion date. This would have meant that full PPR relief would not have been available, and that the taxpayer would have been liable to tax on a gain for a period before the property existed.
The Upper Tribunal had ruled in favour of HMRC on the grounds that S 28 TCGA 1992 prescribed the date of exchange of contracts as the date of acquisition for CGT purposes, and that after payment of the deposit the taxpayer had an asset which he could have disposed of by way of a sub-sale.
However, the Court of Appeal considered that “the mere fact that someone has contracted to buy a property will not give him ‘ownership’” in the sense of being able to “possess, occupy or even use it” in such a way that they could make it their main residence. It also considered that “a purchaser would, as a matter of ordinary language, be described as “owner” only once the purchase had been completed”. The Court also noted that the application of S 28 TCGA 1992 had been restricted by the Courts in some other cases. Furthermore, the fact that, on HMRC’s interpretation of the legislation, ordinary home-owners would rarely be entitled to full PPR relief strongly suggested that HMRC’s interpretation was incorrect.
Given that the three Appeal Court Judges ruled unanimously in favour of the taxpayer, we would hope that this settles the matter and gives more certainty to taxpayers and advisers in future.
Please contact us for further information or assistance in relation to PPR relief or any other CGT matter.
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