A judge has finally come up with some good tax news for home owners over how to apply principle residence relief to off-plan property purchases.
First-Tier Tax Tribunal Judge Heather Gething ruled that a taxpayer can apply the relief from the date of exchange of contracts despite having to wait more than four years to move into the under-construction home.
Desmond Higgins signed an off-plan contract in October 2006 to lease a flat, providing the home was built before June 2012.
Legal completion took place on January 5, 2010, which was the date he could move into the flat.
In December 2011, Mr Higgins decided to sell and the deal completed on January 5, 2012.
The taxpayer calculated his capital gains tax bill based on the property value on the date he took on unconditional use of the property – October 2006 – and when sale contracts were exchanged. He applied PRR to the entire period.
HM Revenue and Customs objected. The tax inspector complained he could not live in the property until January 2010, so could not claim PRR for the earlier period. A tax assessment was issued apportioning reduced PRR relief.
Mr Higgins appealed to the First-Tier Tribunal, who ruled in his favour.
The judge decided he could apply PRR for the period of ownership of January 2010 until January 2012.
“To say the period of ownership begins when a contract to acquire a dwelling is entered, at which time it would be highly unusual for a purchaser to have a right to occupy, would be perverse in the context of providing relief to individuals for gains realised on the sale of a private principal residence,” said the judge.
“The same would be true for the time of disposal. If an individual agrees to sell his dwelling house but for reasons out of his control the purchaser is unable to complete for a significant period, in a thin market it is in the seller’s interest to agree to postpone completion until the purchaser can complete.”
Read the full ruling D Higgins v HM Revenue and Customs TC/2016/03057 [PDF]