On 16 March 2017, the First-tier Tribunal (‘FTT’) released its decision to allow the appeal made by Desmond Higgins in respect of his claim to principal private residence relief (‘PPR’). The case (Desmond Higgins v HMRC  UKFTT 236 (TC)) is another in the long line of PPR cases brought before the courts in recent years and will be of interest to those advising clients in such matters and in particular, advising on the sale of off plan main residences.
The important facts are as follows:
- The appellant, Desmond Higgins (‘DH’) paid a reservation deposit of £5,000 for an apartment yet to be built in 2004;
- On 2 October 2006, once title to the site had been resolved, DH entered into a contract with the seller to be granted a lease over an apartment, not yet in existence, for a total consideration of £575,000. This would include two further deposits which if not paid would allow the seller to rescind the contract. A final payment would be due on completion;
- DH sold his old PPR in July 2007 and then stayed with his parents and other temporary accommodation, none of which was accepted by HMRC as constituting a PPR;
- Work started in November 2009 following delays over funding issues effecting the seller and the apartment was substantially completed in December 2009. Although DH had rights to access at that time, he did not have a right to occupy until 5 January 2010 when the sale was completed;
- On 5 January 2012, DH completed a sale of the apartment.
HMRC did not challenge the amount of the gain on disposal and that PPR was available in line with TCGA 1992 s223(1), where no part of the gain is chargeable where the dwelling house has been the individual’s only or main residence throughout ownership. Their dispute was over the period of ownership for which relief was due which differed from the appellant’s view. This being the case, there would be a restriction on the PPR claim and tax of around £61,000 to pay.
HMRC outlined that the period of ownership for PPR purposes, determined by TCGA 1992, s 222(7) does not provide that this should be confined to periods when an 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 which was 2 October 2006 and not 5 January 2010 when DH took up residence. These dates are determined by the contract dates under TCGA 1992, s 28(1).
HMRC considered that relief from CGT should be confined to increases in value during the period of occupation as a residence. Increases in value before DH occupied the apartment as a residence should not be covered by PPR. The Extra Statutory Concession D49 allowed a period up to two years in exceptional circumstances to be treated as a period of occupation, but the delay in this case well exceeded two years so ESC D49 was not in point.
Counsel for the appellant argued that the period of ownership in relation to the PPR rules began on legal completion when the lease to the apartment was granted to DH on 5 January 2010. Further, when TCGA 1992, ss 222 and 223, are construed purposively to the facts and viewed realistically in line with the case BMBF v Mawson  STC 1, the period of ownership must be confined to the period when the apartment existed and was available for occupation. Under the contract, DH had no rights of occupation until completion of the grant of the lease on 5 January 2010.
In Counsel’s view, TCGA 1992, s 28 could not displace the substantial PPR provisions and ESC D49 was irrelevant. It would be unjust to deny relief from tax on the gain on the disposal of the apartment when it had been occupied by DH as soon as it was legally and realistically available up to its eventual disposal.
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 meaning of ‘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. ESC D49 does not affect this as it is a mere concession;
- When considering the legislation purposively and applied to the facts, DH was entitled to PPR relief. He took up occupation as soon as he was legally and physically able to do so and the fact 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 DH had ownership of the apartment from the date of the contract as it was not possible given it did not exist at that time. The contract was to buy a lease of the finished apartment. The period of ownership for PPR purposes began when DH 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 be used as the main residence until its sale in January 2012, PPR was due on the whole gain.
This decision will be of interest to those involved with off-plan property purchases which are becoming more common and where delays can often 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.
For further information please contact the TaxDesk on 0845 4900 509 and ask for Martin Mann.