Common sense has prevailed!  The Court of Appeal (CoA) has decided on a case where a taxpayer claimed principal private residence relief (PPRR) on a disposal of a flat in London.  The taxpayer had purchased the flat ‘off plan’, sometime before construction as is common for many new build developments.  Due the global financial crisis in 2008 the developer had to find new finance and construction took much longer than expected, as is also common.  As soon as the flat was completed the taxpayer completed the purchase of the flat at the agreed price and promptly took up residence.

HMRC held that the period of ownership of the flat had been from when the taxpayer had exchanged contracts to acquire the flat until he eventually sold it and wished to tax him on the gain during the period when the flat wasn’t his main residence, despite the fact that it wasn’t built and ready for human habitation.  Section 28 in the capital gains legislation does state that for transactions under contract, that real estate transactions typically are, the relevant date is the date of the contract, not dates of completion.

The taxpayer had challenged HMRC’s assessment in the First-tier Tribunal (FTT) who had found in favour of the taxpayer but HMRC appealed to the Upper Tribunal (UT) who found for HMRC.  The CoA has reversed the UT’s decision now finding in favour of the taxpayer.

The CoA noted that there had been prior instances where the effect of section 28 had been limited and considered that this was another case where its effect could also be limited.  There were no cross references to section 28 in the sections deal with PPRR.  The CoA also found that if HMRC’s construction of the capital gains legislation was to be applied then many many more transactions would become taxable where homeowners of single homes could be subject to tax and this clearly wouldn’t have been Parliament’s intention when enacting the PPRR.

The decision can be found at: Higgins v Revenue And Customs – Find case law (nationalarchives.gov.uk)

This is a good day for commonsense.  Many people purchase property off-plan and if HMRC had been successful many of these people could have become subject to capital gains tax on disposal of homes when they weren’t occupied as quite often they don’t physically exist.  Please contact us if you have any questions on capital gains.