Principal Private Residence Relief (PRR) and off-plan home purchases
When the signing of a contract does not result in ownership!
The recent case of Desmond Higgins v HMRC shows that confusion can still exist.
In Desmond Higgins v HMRC The facts of the case: 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 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.
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:
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