Clients who bought homes off-plan may be sitting on significant gains. Where they have occupied the home as their main residence you would expect the entirety of the gain to be exempt under the principle private residence relief (PPR).
However, the Higgins case heard at the Upper Tribunal (UT) last year, decided that the gain attributed to the period between exchange of contracts and the date the home is first occupied by the taxpayer not relieved by PPR. We discussed the implications of case in our newsletter on 4 October 2018.
This period between exchange of contracts and the moving-in date can be considerable for newly built properties. As HMRC insists that the gain is apportioned equally to every day of the period of ownership, even when the property is half-built, the taxable gain not covered by PPR can be large.
The Higgins case has now been heard at the Court of Appeal, which needed to decide when his period of ownership of the apartment commenced for the purposes of PPR.
The FTT decided Higgins’ ownership period commenced on the day he moved in; when he “owned the legal and equitable interest in the lease of the apartment and owned the legal right to occupy the apartment.”
The UT decided the period of ownership started on the day the contract to purchase was agreed (exchange of contracts). At this point the apartment didn’t exist – it was only a “space in a tower”.
The Court of Appeal has ruled that the decision made by the FTT was correct, so the ownership period started when he first occupied the apartment. This means that all of his gain is covered by PPR.