Property investor cannot offset lost deposits and other costs against capital gains tax on purchases that fail to complete, a tax tribunal has ruled.

The rule was reinforced in the case of Anthony Hardy v HMRC in a recent case before the First Tier Tax Tribunal.

Mr Hardy paid over £128,000 in deposits on two off-plan home purchases, exchanging contracts in April and May 2008.

The contracts were conditional on developers completing the builds and the issue of architect certificates of practical completion.

When the homes were completed in 2009, Mr Hardy did not have the funds to complete the purchases, so the developers pulled out of the deals and kept his deposits.

In 2009-10, Mr Hardy submitted a tax return including capital gains against other property disposals and offset the lost deposits against those gains.

HMRC objected on the grounds that the lost deposits were not allowable losses as set out in CGT legislation.

The tax tribunal found that as the contracts did not complete, no acquisitions had taken place, therefore no disposals occurred leading to any capital gain or allowable loss.

The tribunal rejected Mr Hardy’s appeal that the losses were allowable.

The result was his CGT liability for 2009-10 was increased by £23,000.

In the ruling, tribunal chairman Judge Malachy Cornwell-Kelly said:

“The consequence for the present appeal is clear: neither the exchange of contracts, nor the satisfaction of the condition as to construction of the houses, marked the acquisition of assets by Mr Hardy, or anybody else, because the transactions intended never took place; and, accordingly, the rescission of the contracts did not mark a disposal of assets on which either a gain or a loss could be realised.

“On any view of the matter therefore, the loss of the deposits cannot have been a loss capable of being allowed against chargeable gains in the same year.”

Read the full tribunal report Anthony Har​dy v HMRC [2015] UKFTT 0250 (TC)

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.