When people buy property from a developer ‘off-plan’, does their period of ownership begin when contracts are signed, or when they actually move in? That question has crucial tax implications and has now been decisively answered by a tribunal.
The case concerned a man who bought a flat off-plan for £575,000. Completion of the flat was delayed by the credit crunch and almost four years passed before he was able to take up occupation. As the flat was his main residence for two years before he sold it for £1,215,000, he claimed that Section 222 of the Taxation of Chargeable Gains Act 1992 (the Act) entitled him to complete relief from Capital Gains Tax (CGT).
HM Revenue and Customs (HMRC), however, took a different view. It argued that his period of ownership of the flat began when he contracted to purchase it, and ended when he contracted to sell it. It had not been his main residence throughout that time and he was therefore only entitled to CGT relief in respect of the period during which he was in actual occupation. HMRC raised a CGT demand for £61,383, but that was subsequently overturned by the First-tier Tribunal.
In upholding HMRC’s appeal against that ruling, however, the Upper Tribunal noted that Section 223 of the Act restricts CGT relief pro rata where the asset is not the taxpayer’s main residence throughout the whole period over which the gain accrues. There was nothing absurd or unfair in restricting relief for off-plan purchases because, in the period before a dwelling is completed, it is clearly not the taxpayers’ main residence. The gain that the man accrued had arisen across the whole period between the date on which he contracted to buy the flat and the date on which he contracted to dispose of it.
The Commissioners for Her Majesty’s Revenue and Customs v Higgins. Case Number: UT/2017/0098