The Court of Appeal has overturned a decision that the “period of ownership” for the purposes of principal private residence relief begins on exchange of contracts and that a buyer, who was not able to move into his new apartment in London because development was delayed by the credit crunch in 2008, was liable for capital gains tax of more than £61,000 because the property had not been his only or main residence throughout the period of his ownership.
The contract in Commissioners of HM Revenue and Customs v Higgins [2019] EWCA Civ 1848; [2019] PLSCS 210 was exchanged in 2006, but was not completed until 2010. The taxpayer sold his former residence in July 2007 and had moved about until his new apartment was ready – and the First Tier Tribunal found as a fact that there was no other dwelling that he has regarded as his principal residence in the interim. The tribunal also decided that, for the purposes of PPR relief, the taxpayer’s period of ownership began when he completed his purchase and ended when he completed his sale two years later.
The Upper Tribunal disagreed. It considered that the “period of ownership” began on exchange of contracts, and that the apartment did not become the taxpayer’s principal residence until he took up occupation in 2010. But the Court of Appeal was struck by the fact that, if this was right, few people buying a new home would be fully relieved of any possible CGT liability.
HMRC argued that the period between exchange and completion is often very short and that the taxable gain would often be so small that it would fall within an individual’s annual CGT exemption. Furthermore, Extra-Statutory Concession D49 states that, where an individual acquires land on which he has a house built, which he then uses as his only or main residence, or arranges for an existing house to be altered or redecorated before using it as his only or main residence, he will be treated as having used the property as his only or main residence from the beginning if the delay is no longer than one year (or sometimes two).
But Lord Justice Newey, who spoke for the court, was not impressed. There was nothing in the legislation to indicate that short gaps between exchange of contracts and completion can be ignored and the legislation does not state that taxpayers are excused from relatively small liabilities. Furthermore, a homeowner who has sold his property at a profit may already have exhausted some or all of his annual CGT exemption and Extra-Statutory Concession D49 will not always apply.
The Court of Appeal accepted that section 28 of the Taxation of Chargeable Gains Act 1992 provides that, where an asset is disposed of and acquired under a contract, the time at which the disposal and acquisition is made is the time the contract is made. But section 222 and 223 do not refer to section 28 and the court took the view that a purchaser would, as a matter of ordinary language, be described as an “owner” only once the purchase is completed. Furthermore, when contracts were exchanged the apartment was just a “space in the tower” and did not come into existence until November/December 2009. Consequently, this case could be distinguished from cases relating to land that already exists, on which a house will be built.
Allyson Colby is a property law consultant
