Higgins – for the purposes of PPR relief "period of ownership" starts on completion

In Desmond Higgins v HMRC [2019] EWCA Civ 1869, the Court of Appeal has held that the date of acquisition of an off-plan property for the purposes of principal private residence relief (PPR) was the date of completion and not the date of exchange of contracts.

Background

Mr Higgins (the taxpayer) paid a deposit for an apartment in London off-plan in 2004 (the property).  A formal contract of sale was entered into in October 2006 and a 10% deposit was paid.  Due to the 2008 financial crisis, building was delayed and completion did not occur until 5 January 2010.  The taxpayer owned no other residence between July 2007 and January 2010 and there was no other dwelling that he regarded as a main dwelling during that period.    

The taxpayer sold the property in 2012, making a capital gain before relief of approximately £640,000 and claimed PPR on the full gain.  HMRC refused the claim on the basis the taxpayer's period of ownership began on exchange of contracts in October 2006.  

The taxpayer appealed HMRC's decision to refuse his claim.  

The issue for determination was the meaning of the words "period of ownership" in section 223, Taxation of Chargeable Gains Act 1992 (TCGA).  If the period of ownership did not begin until completion on 5 January 2010, then the property was the taxpayer's main residence "throughout the period of ownership" and no capital gains tax would  be payable due to PPR.  If, on the other hand, the taxpayer's "period of ownership" began when contracts for purchase were exchanged in October 2006, he would only enjoy PPR on some of the gain made. 

The First-tier Tribunal (FTT) allowed the taxpayer's appeal and held that the date of ownership began on the date of completion.  HMRC appealed the FTT's decision to the Upper Tribunal (UT). The UT allowed HMRC's appeal and held that the date of ownership began on the date contracts were exchanged.  

Court of Appeal judgment 

The appeal was allowed.

The Court of Appeal considered that HMRC's case ran counter to the ordinary phrase "period of ownership", where a purchaser would be described as the "owner" once the purchase had been completed.  The Court noted that if HMRC was correct, few people buying a  home would come within the scope of section 223, TCGA, and benefit from PPR, because exchange and completion did not normally take place on the same day.  In the view of the Court, the fact that someone has contracted to buy a property does not give them "ownership" so as to allow them to possess, occupy or even use the property, let alone make it their only or main residence.  

Accordingly, the Court held that, for the purposes of section 223, the taxpayer's "period of ownership" did not begin until the date of completion of the purchase of the property.  

Comment

This decision will be of interest to those involved in off-plan property purchases or other purchases where substantial delays may occur between the time of exchange of contracts and the purchaser residing in the property.  It is anticipated that HMRC will seek to appeal the decision to the Supreme Court.  

The judgment can be viewed here.