Principal residence relief disallowed while UK home was uninhabited

Thursday, 11 October 2018
A homeowner who bought a flat ‘off-plan’ (pre-construction) is liable for capital gains tax (CGT) from the date he signed the purchase contract, but can only claim principal private residence (PPR) relief on the period after he moved in, the Upper Tax Tribunal has ruled.


The case was HMRC v Higgins (2018 UKUT 280). Higgins bought the flat at St Pancras Station in London from the developer in 2006, exchanging contracts on 2 October, before the building work had even started. It was not finished until January 2010, when Higgins completed the purchase and moved in.

Exactly two years later, he sold it and moved out. He claimed CGT relief for the full period of his ownership, including the 39 months between 2006 and 2010 when he had bought it but not moved in. However, HMRC decided Higgins was not entitled to the PPR relief for the period before his occupation. It charged him GBP61,383 for the CGT liability, calculated pro rata.

Higgins successfully challenged this at the First-tier Tax Tribunal, which found that the period of ownership for CGT purposes did not start until he had a right to occupy the property: in other words, at completion.

HMRC appealed, and has now had that ruling overturned at the Upper Tax Tribunal, which decided that taxable gains begin to accrue as soon as contracts are exchanged, but the PPR exemption only applies when the taxpayer is in residence.

Higgins also tried to argue exemption under extra-statutory concession D49. This allows a delay in taking up residence to be treated as a period of deemed occupation. But the Upper Tribunal judges decided that D49 could not be used where the delay occurred between exchange of contracts and completion.

The ruling suggests that practitioners should now advise ‘off-plan’ buyers that an unexpected CGT charge may arise when they sell their properties.


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