UPDATE: This case has now been heard at the Court of Appeal which overturned the Upper Tribunal decision. See When does ownership of an off-plan residence begin?
Can you own a property that doesn’t exist? According to a decision made by the Upper Tribunal yes, you can.
The case involved Mr Higgins, who had purchased the lease of a flat through an off-plan purchase contract in October 2006. The property was not built until December 2009 and Mr Higgins did not start occupying the flat until legal completion took place in January 2010. He went on to sell the property in January 2012 making a significant capital gain.
Mr Higgins sought to claim Private Residence Relief (PRR) to exempt the whole of the gain from tax on the grounds that he couldn’t own the property until he was entitled to occupy it, and this didn’t occur until January 2010. He therefore occupied the flat as his main residence for the whole of his period of ownership and was entitled to full relief from capital gains tax.
The First Tier Tribunal agreed with Mr Higgins, however the Upper Tribunal did not. The Upper Tribunal determined that the period of ownership began with the exchange of contracts which took place in October 2006, even though the flat itself didn’t exist until years later. Mr Higgins PRR claim therefore had to be restricted as he had not occupied the flat as his main residence throughout his ownership period and part of his gain remained taxable.
It is interesting to note that for the vast majority of property purchases there will be a delay between the exchange of contracts (when ownership is deemed to begin) and completion (when occupation can begin). However, HMRC have said that in practice they will “ignore a period of a few weeks’ non-residence” as a result of this delay.
To read the full Upper Tribunal decision follow this link.
For more information contact me.
