Where a property is someone’s residence for all their ‘period of ownership’, there is no capital gains tax to pay on the sale of a main private residence. But with off-plan purchase, where a property is purchased before it’s built, the position with regard to capital gains tax is proving more contentious.

In 2017, a case concerning principal private residence relief (PRR) and an off-plan purchase resulted in victory for the taxpayer. The case was brought by Mr Desmond Higgins, who had bought an off-plan apartment in 2006. Because of delays in construction attributable to the credit crunch, he was unable to take up occupation until 2010. He subsequently sold the apartment a year later for substantially more than he had purchased it.

HMRC sought to restrict the PRR available in this case. It argued that Mr Higgins’ period of ownership began in 2006 – even though this was before the apartment had actually been constructed. The tribunal however, held that ownership would ordinarily be said to start when a dwelling was physically and legally completed, and the purchaser had the right to occupy. It allowed Mr Higgins’ appeal, upholding his right to PRR – and quashing a tax bill of over £60,000.

However, the Upper Tribunal has now reversed this verdict. It pointed out that the property was a chargeable asset acquired when unconditional contracts were exchanged – in this case in 2006.

Holding that a gain accrued over the entire period, from contract to purchase to ultimate disposal, the Upper Tribunal found that there was nothing ‘unfair’ in restricting PRR on an off-plan purchase. It also highlighted the fact that the taxpayer had the right, if he chose, to sub-sell the apartment before it was constructed. Had he done so, a chargeable gain would have arisen on any increase in value. ‘There would have been no question of any main residence relief in relation to that gain,’ the tribunal commented.

With anything pertaining to PRR, attention to the strict detail of the rules is important. Should you have any questions, we should be only too pleased to provide advice tailored to your individual circumstances.