In a good decision for people who build their own homes the Upper Tribunal (UT) has held that private residence relief against gains incurred on private dwellings applies to a period of ownership where a house is being built.  This meant the whole gain was subject to relief and no taxable gains arose.

The taxpayers, a married couple, purchased a plot of land that had a house on it.  They then arranged for the house to be demolished and a new house built.  The demolition and reconstruction took some time, over two years.  Once the house reconstruction was completed the couple promptly took residence of the house.  Just over a year later the couple then sold the house and realised a gain of over £500k.

The couple claimed private residence relief on the disposal, but HMRC disagreed and issued a closure notice calculating that the period of ownership from purchase to completion of the reconstruction was subject to tax.  HMRC claimed that period of ownership meant the time from acquisition of the land to the date of disposal.  The couple disagreed holding that the period of ownership of a private dwelling could only be from completion of the reconstruction to the date of disposition, which corresponded to their residency and hence the whole gain was exempted.

The First-tier Tribunal agreed with the couple and upheld their appeal.  HMRC then appealed to the UT who have now also found for the couple.  The UT reviewed the relevant legislation and considered prior case law.  One of the cases reviewed was a case where a taxpayer had purchased a flat ‘off-plan’, i.e. before construction completion that we have reported on, see here.  The UT held that a period of ownership of a private dwelling, or part of, can only mean the period where there is a dwelling, the period of reconstruction was not part of the period of ownership for the purposes of private residence relief.

The decision can be found at: THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS v (1) GERALD LEE (2) SARAH LEE [2023] UKUT 00242 (TCC) – GOV.UK (www.gov.uk)

This is a good decision for people who build their own homes, especially builders who serially build and renovate their homes.  While case must be taken with serially home development and using private residence relief for capital gains this decision has helped clarify the technical meaning of period of ownership.

Please contact us if you have any questions about capital gains, we are experienced with these matters.