HMRC loses a principal private residence relief case (for now)
Recent case will have a major impact on the availability of PPR relief and may be particularly relevant in the post-Brexit property market.
In the most recent chapter of the Higgins vs. HMRC case relating to principal private residence relief, the Court of Appeal ruled in favour of the taxpayer, but allowed an appeal. The conclusion of the case will have a major impact on the availability of PPR relief in case of disposals of properties purchased off plan, and may be particularly relevant in the post-Brexit property market.
In October 2006 Desmond Higgins paid a reservation deposit and exchanged contracts to secure a two-bedroom apartment off plan. Due to construction delays completion was not until January 2010 when the property was first available for occupation. Higgins sold the property in 2012 and claimed full PPR relief on the gain. HMRC denied full PRR on the basis that the property was acquired in 2006 but not occupied.
In 2017 the First Tier Tribunal decided that the date of ownership for PRR was the date of completion, but this was overturned by the Upper Tribunal in 2018. The Upper Tribunal decision was based on section 28 of TCGA92 – the start of a period of ownership was the acquisition date, which is the date when the contract is made, ie exchange, rather than completion.
The Court of Appeal noted that disallowing full PPR in cases similar to Higgins would mean that few people buying a new home would be able to claim PRR for the period between exchange of contracts and completion; this was clearly not the intention of the legislators.
The Court of Appeal found that:
although s28 of the TCGA confirms that the ‘period of ownership’ of a dwelling-house runs from the date of the contract for its purchase, the Principal Private Residence relief legislation (s222 and 223) does not refer to section 28, therefore there was no reason why the period of ownership for PPR purposes must run from the date of the contract (exchange) and not from the date of completion
the mere fact that someone has contracted to buy a property does not transfer ownership that would allow the person ‘to possess, occupy or even use the property, let alone to make it his only or main residence’.
It is likely the PPR relief legislation will need to be further amended, to clarify the tax position for property owners as the property market evolves and off plan purchases become more and more popular.
Currently ESC49 deals with the impact of a delay between acquisition (exchange) and occupation of a property and allows PPR relief if the delay lasts up to 12 months, or two years if the reasons to exceed the 12 month delay were outside the individual’s control.
ESC49 would not have helped Higgins if the date of ownership started at the point of exchange of contracts, as the delay would have been over three years.