Capital gains tax – Main residence relief – Off-plan purchase – Period of ownership – Appellant claiming main residence relief on sale of apartment – Respondent commissioners raising capital gains tax assessment – First-tier Tribunal allowing appellant’s appeal – Upper Tribunal overturning decision – Appellant appealing – Whether “period of ownership” determined by reference to date of completion or date of exchange of contracts – Appeal allowed
In 2004, the appellant purchased an apartment “off-plan” in a development of the former St Pancras Station Hotel in central London. He paid a reservation deposit of £5,000 to secure a two-bedroom apartment. On 2 October 2006, he entered into a contract with the seller. The purchase price was £575,000. A 10% deposit (which included the reservation deposit) was payable on or before 2 October 2006. A further 10% deposit was payable on 1 March 2007. Construction work began in November 2009 and was physically completed in December. Completion took place on 5 January 2010.
Thereafter, the appellant occupied the apartment as his main residence until he sold it on 5 January 2012 for £1,215,000. The appellant occupied the apartment as his main residence from 5 January 2010 to 5 January 2012. He had sold his former residence in July 2007. Between then and January 2010, his residential arrangements varied but no other dwelling was regarded as his main residence throughout that period.
The appellant claimed full main residence relief from capital gains tax (CGT) under sections 222 and 223 of the Taxation of Chargeable Gains Act 1992, on his disposal of the apartment, arguing that it had been his main residence throughout his period of ownership. The respondent commissioners disagreed and assessed the appellant to owe CGT of £61,383.48.
The First-tier Tribunal (FTT) allowed the appellant’s appeal. The FTT found as a fact that there was no other dwelling which the appellant regarded as his main residence from July 2007 to January 2010. The respondent commissioners’ appeal was allowed by the Upper Tribunal. The tribunal considered that the relevant “period of ownership” had begun on the exchange of contracts in 2006 when, on payment of the first deposit, the appellant had an equitable interest in the property and had acquired a disposable asset once the second deposit was paid in March 2007: [2018] UKUT 280 (TCC); [2018] PLSCS 166. The appellant appealed.
Held: The appeal was allowed.
(1) The central question was as to the meaning of the words “period of ownership” in section 223 of the 1992 Act. The respondents’ case ran counter to the ordinary meaning of those words. The expression would not naturally be taken to extend to the interval between contract and completion. A purchaser would, as a matter of ordinary language, be described as “owner” only once the purchase had been completed. Although a vendor who had entered into a specifically enforceable contract could be described as “trustee” for the purchaser, he was a trustee in a qualified sense only and would usually be entitled to keep and retain for his own benefit the rents and profits of the land.
The mere fact that someone had contracted to buy a property would not give him “ownership” such as could allow him to possess, occupy or even use the property, let alone to make it his only or main residence. It was hard to see how the appellant’s “period of ownership” of the apartment could have begun before late 2009. When contracts were exchanged in 2006, the apartment was just a space in the tower. The present case was thus distinguishable from one in which someone contracted to buy a plot of land on which a house was to be built. The plot of land would already exist. In contrast, the apartment did not come into existence until November/December 2009: Chaney v Watkis (1985) 58 TC 707; [1986] STC 89, Jerome v Kelly [2002] 2 EGLR 73 and Marshall v Kerr [1993] STC 360 considered.
(2) Section 28 of the 1992 Act did not dictate the conclusion that the “period of ownership” of a dwelling-house for the purposes of sections 222 and 223 had to run from the date of the contract under which it was bought. There was no necessity to measure “period of ownership” by the time of acquisition and disposal, for which section 28 provided, when sections 222 and 223 did not state that “period of ownership” was to be so determined or mention section 28; neither did section 28 contain a cross-reference to sections 222 and 223. Section 28 could aptly be described as a “deeming provision”, the applicability of which had to be assessed in the specific context. The fact that using section 28 to fix a “period of ownership” for the purposes of sections 222 and 223 would neither afford total CGT relief in the paradigm case nor sit comfortably with the ordinary meaning of the words “period of ownership” indicated that the provision should not be applied in that context.
(3) Section 222(7) of the 1992 Act did not help in defining the period of ownership generally. The subsection was directed at a situation in which a person acquired successive interests, ie a lease and later the freehold. If the acquisition of an earlier interest was to be taken into account when calculating deductible expenditure, the “period of ownership” likewise had to encompass that in which the earlier interest was held. Section 222(7) did not purport to deal with whether someone who had done no more than contract to purchase a property had relevant “ownership” or stipulate that section 28 applied when determining “period of ownership”. A person could not claim to have more than one main residence at any one time. An individual with two or more residences could choose which was to be treated as his main residence by giving notice under section 222(5) of the 1992 Act, but he could not have multiple main residences. There was no question of the appellant ever having had more than a single main residence simultaneously. By the time the apartment became his main residence in January 2010, he had long since sold his previous residence. In all the circumstances, the appellant’s period of ownership for the purpose of section 223 did not begin until his purchase was completed.
Nicola Shaw QC and Samuel Brodsky (instructed by Fieldfisher LLP) appeared for the appellant; Christopher Stone and Nicholas Macklam (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Commissioners of HM Revenue and Customs v Higgins
