Principal Private Residence Relief – period of ownership

In HMRC v Higgins [2018] UKUT 280 (TCC), the Upper Tribunal has determined a point of law on the application of principal private residence relief (PPRR) from capital gains tax on disposal of a main residence. Where the asset has not been a taxpayer’s main residence throughout the “period of ownership”, relief extends only to  a proportion of the gain. The issue before the Upper Tribunal was how the period of ownership should be determined: whether it is the period between exchange of contracts for the purchase and the subsequent sale, or the period between the respective completions.

Ordinarily, the date between exchange and completion is a few weeks and is unlikely to be important for calculation of PPRR. However, in Higgins, the taxpayer had exchanged contracts to buy an apartment in the former St Pancras Station Hotel ‘off plan’ in October 2006. The apartment did not at that date exist. Works were not finished until the end of 2009 and he completed the purchase and moved into the apartment in January 2010.  Thereafter, Mr Higgins occupied the apartment as his main residence until it was sold, with exchange of contracts for the sale in December 2011 and completion in January 2012.

The Taxation of Chargeable Gains Act 1992, s 28, provides that where an asset is disposed of and acquired under an unconditional contract, the date of disposal and acquisition is the date the contract is made and not the date of conveyance of the asset. However, the First-tier Tribunal found that this provision did not determine the ‘period of ownership’ and that, applying the ordinary meaning of the term, the period ran from the date that Mr Higgins had the right to occupy the apartment (ie the date of completion).  It therefore found that he was entitled to relief on the full gain that he had made on the apartment.

On appeal, the Tax and Chancery Chamber of the Upper Tribunal (Rose J and Tribunal Judge Cannan) overturned the First-tier Tribunal’s decision and decided that the length of the period of ownership is governed by s 28.  Accordingly, for the purposes of calculating PPRR, the period of ownership is from the date of exchange of contracts for the purchase of the property until the date of exchange of contracts for the sale. As Mr Higgins had occupied the apartment only for a proportion of the time that he had owned it, he was entitled only to a proportion of the relief.

Christopher Stone appeared for HMRC.

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