There has been a recent case going through the courts where Mr Higgins purchased an apartment in 2004 and paid a holding deposit but issues relating to the title prevented construction from starting. Mr Higgins did not therefore move into the apartment until January 2010. In January 2012 he sold the property.
Mr Higgins claimed Principle Private Residence relief against the capital gain arising on the sale, meaning that no tax was due. HMRC argued that he did not occupy the property for the full period of ownership.
The First Tier Tribunal (FTT) agreed with an argument made by Mr Higgins that ‘the period of ownership of a dwelling house will ordinarily be said to begin on the date the purchase of the dwelling house has been physically and legally completed and the purchaser has the right to occupy’.
In the course of HMRC’s appeal at the Commissioners, they queried whether the relief should be restricted where the ‘period of ownership is longer than the period when the dwelling is used as a main residence’. This would take into account the period from 2006 when Mr Higgins entered into a contract to purchase with the developer.
The Commissioners agreed with HMRC and thus, buying off-plan means that any gain is likely to have an investment element which would be taxable at 28%.
Lucy Orrow – Lambert Chapman LLP comment:
It is important to understand the way in which contracts work and for capital gains tax purposes, the important date is where an agreement becomes binding – usually exchange, rather than completion. In this instance, the binding agreement to purchase was in 2006 and so the delay in occupation until 2010 created a void period, which was not relievable under the principle private residence relief rules.
If you are thinking of buying off-plan, as many people do in this current period of house building, we will be happy to talk you through the potential pitfalls.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.