The Higgins hotel hassle: CGT and off-plan purchases
David Whiscombe comments on the limits of Main Residence exemption.
Broadly, you get full exemption from tax for a capital gain on a property only if it’s been your “main residence” throughout your period of ownership. But when does the period of ownership begin if you buy off-plan? That was the problem addressed by the Upper Tribunal in Higgins  UKUT 0280.
Mr Higgins bought an apartment in the St Pancras Station Hotel development. (Thanks are notably due, and not only from Mr Higgins, to the late Sir John Betjeman, without whose efforts that Gothic extravaganza might have suffered at the hands of philistine modernists in the 1960s the same sad fate as befell the Euston Arch: but we digress). He paid a reservation deposit to secure a particular yet-to-be-built apartment in 2004 and signed a purchase contract in 2006.
Building the apartment started in 2009 and finished at the beginning of 2010. Thereupon legal completion took place and Mr Higgins occupied the apartment as his main residence until he sold it at the end of 2011, at something over double the price he had given for it.
So what was his “period of ownership”?
Mr Higgins had persuaded the First-tier Tribunal that the period began only when he completed the purchase and was physically able to occupy the apartment: any other construction would, he said, be absurd. The whole gain was thus exempt.
The Upper Tribunal disagreed. Essentially, it considered that the rule at s28 (which says that, where something is acquired or disposed of under a contract, the acquisition or disposal is treated as taking place on the contract date) was relevant. The apartment had thus been acquired in 2006, and that was when the period of ownership began. Mr Higgins had occupied it as his main residence for only about a third of the period of ownership, so exemption was restricted accordingly.
At one level, one can see Mr Higgins’s point: to get full relief would have required him to occupy the apartment between 2006 and 2010, when it didn’t exist.
But a moment’s thought shows the illogicality of the argument. It’s reasonable to suppose that by the time the apartment was completed in 2010 the majority of the gain had already accrued. If Mr Higgins had sold at that time without moving in, there is no question but that the whole gain would have been chargeable: so it would be odd if the whole gain had become exempt simply because the property had become on completion his main residence, for however short a period.
As the Tribunal pointed out, “There is nothing absurd or unfair in a construction which restricts relief for off-plan purchases because in the period before the dwelling is constructed it is clearly not the taxpayer’s main residence. The gain does not arise only in respect of a period in which it is the taxpayer’s main residence but across the whole period between the date when the purchase price is fixed by the contract for acquisition and date when the sale price is fixed by the contract for disposal.”
Interestingly, although the difficulty is most apparent in the case of an off-plan purchase, it is in principle present in most purchases.
Most purchasers do not take up occupation until completion, which is usually a few weeks after an exchange of contracts triggers the start of the “period of ownership”. Thus, in most cases there should strictly be a small restriction to the relief. There is an Extra-Statutory Concession (which we considered in the strange case of McHugh). But it doesn’t cover this most common of situations. In practice HMRC just don’t take the point. Whether they will now start to do so, especially if the delay between exchange and completion is unusually long, remains to be seen.
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