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A curious aPPRoach?

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10 October 2018
The Upper Tribunal has ruled that the purchase of an off-plan flat had an investment element and hence was subject to a taxable gain.  

Generally, investment properties are subject to capital gains tax on disposal, however, where the taxpayer lives in a property for the entire period of ownership, the gain is exempt under principal private residence (PPR) relief.

The facts
  • Mr Higgins signed an agreement in October 2006 for an off plan flat purchase.
  • Mr Higgins sold his existing main residence in July 2007 and thereafter lived in temporary accommodation, travelled and stayed with his parents.
  • Building work was delayed due to financing issues and the flat was not substantially complete until late 2009.
  • Mr Higgins had access rights from December 2009 but did not have a right to occupy until January 2010 on completion of the purchase.
  • In January 2012 Mr Higgins sold the flat. 

Mr Higgins argued that no capital gains tax should be payable on the basis that he occupied the flat for the entire period of ownership from the point that it was available to occupy until sale.  


HMRC contended that the period of ownership commenced from the point the date contracts were exchanged i.e. October 2006 and therefore PPR should not be available on the entire gain as Mr Higgins only occupied the flat from 2010.

The Judgement

Rather surprisingly, the judge overturned the seemingly common sense decision of the First Tier Tribunal that the period of ownership should commence from the completion date.  

Instead, the Upper Tier Tribunal sided with HMRC, agreeing that the period of ownership ran from the date the contract was entered into i.e. 2006.  This resulted in PPR only being available for a proportion of the gain, leaving Mr Higgins with a tax bill of over £60,000.

A fair result?

Tax partner, Nick Haines, commented, “This seems somewhat of a farcical result as Mr Higgins occupied the flat at the first available opportunity and yet this was not sufficient to claim full PPR.”

He added, “This result highlights that in our ever more complex tax system, common sense doesn’t always prevail.  Taking professional advice upfront to understand the tax position of a transaction and any potential risk or grey areas of the legislation is key to avoid being hit with a surprise tax bill further down the line”.