This case was the subject of an earlier blog – Can I claim Private Residence Relief for an off-plan purchase? – which covered the Upper Tribunal decision in favour of HMRC. It has since reached the Court of Appeal which reached the opposite conclusion.
The case
Mr Higgins 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 claimed 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 in 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 Upper Tribunal disagreed, finding that the period of ownership began with the exchange of contracts in October 2006. The 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.
The Court of Appeal decision
The Court of Appeal (CA) found in favour of the taxpayer, agreeing that the period of ownership for the purposes of PRR starts from the date of completion, not exchange:
- The CA found it implausible that parliament would have intended PRR to not give complete relief from capital gains tax in a typical case of the purchase and sale of a person’s only home.
- Although there is legislation which defines the date of acquisition of a property as being the date of exchange of contracts, it is not necessary to apply this legislation to the meaning of ‘period of ownership’ for PRR purposes.
- The period of ownership for PRR purposes should begin from the date the purchase was completed.
Further information
Establishing capital gains tax liability and calculating any reliefs due is not always a straightforward matter and there are many complications that can impact upon the availability of Private Residence Relief.
If you have any questions or concerns about the capital gains tax liability on disposing of a property please contact me.
If you want to look at the Court of Appeal case itself, here’s the link: Desmond Higgins v HMRC [2019] EWCA Civ 1860.
