Principal Private Residence Relief (PRR) and off-plan home purchases

The facts of the case:
Mr Higgins entered into a contract for the purchase of an apartment (not yet in existence) in October 2006. The construction was not finished until December 2009. Although Mr Higgins had rights to access at that time, he did not have a right to occupy until 5 January 2010 when the sale was completed. Two years later, he sold the property.
The question was whether the period of ownership for PPR purposes began with a contract to acquire or when the property had been physically and legally completed and the purchaser had the right to occupy. The case considered the provisions of s222 and s28 of TCGA 1992:

• S222 TCGA 1992 provides for relief from a capital gains tax charge if the property is the main residence of an individual throughout the period of ownership. Partial relief is given if the property has been the main residence for part of the period.

• S28 TCGA 1992 provides that a person is deemed to have disposed of and acquired an asset when a contract is made and not, if different, the time at which the asset is conveyed or transferred.

HMRC outlined that the period of ownership for PPR purposes should be determined by the contract date, and not the date when the individual can first physically occupy a dwelling. In HMRC’s view the period of ownership in this case commenced at the date the contract to acquire the lease on the apartment was signed in October 2006, and not 5 January 2010 when Mr Higgins took up residence.

HMRC considered that relief from CGT should only be available during the period of occupation as a residence. Increases in value before occupation should not be covered by PPR.

Having considered all the arguments, the tribunal confirmed that PPR could be claimed against the whole of the capital gain arising on the sale of the apartment for the following reasons:

• the ‘period of ownership’ of a dwelling house will begin on the date when the purchase of the dwelling house has been physically and legally completed and the purchaser has the right to occupy
• it also mentioned (although ESC D49 was not in point in this case, since the delay in occupation had been well over two years) that the terms of that concession show the absurdity of using s28 to determine the period of ownership for the purposes of s 222 and s 223
• when considering the legislation purposively and applied to the facts, Mr Higgins was entitled to PPR relief. He took up occupation as soon as he was legally and physically able to do so and the fact that there was so much delay before he could do so was no fault of his. He then remained resident there until he completed the sale of the apartment
• TCGA 1992, s28, identifies the acquisition and disposal of a chargeable asset but it does not directly determine the meaning of ‘period of ownership’ of a dwelling house in the context of the availability of the PPR. If the draftsman wanted to say that section 28 determined period of ownership, then it would have been easy to make that change when it was introduced into statute
• to say that the period of ownership begins when the contract to acquire is entered into but the individual has no right to occupy until a later date would be perverse in the context of eligibility to PPR on sale.

The tribunal did not accept HMRC’s argument that Mr Higgins had ownership of the apartment from the date of the contract, as this was not possible given that the apartment did not exist at that time. The period of ownership for PPR purposes began when Mr Higgins had a legal and equitable interest in the lease and a legal right to occupy the apartment, which was 5 January 2010. As the apartment had then been used as the main residence until its sale in January 2012, PPR was due on the whole gain.

Conclusion

This decision will be of interest to those involved with off-plan property purchases where delays occur before the buyer takes up residence. The tribunal took a purposive and pragmatic view in relation to the facts, dismissing HMRC’s technical argument in relation to TCGA 1992, s28 which in this case worked in favour of the taxpayer.