The First Tier Tribunal has rejected HMRC’s argument that the taxpayer’s period of ownership of a property should include time taken between exchange and completion

What is Principal Private Residence Relief?

Principal Private Residence Relief, or PPR, is a relief that enables taxpayers to sell their homes without having to pay capital gains tax (CGT). In order to claim the relief the property being sold must be the taxpayer’s main residence.

If a taxpayer sells their home and it was not their main residence for the entire time they owned the property then they may have to pay some CGT on the sale proceeds. This could be the case if, for example, an individual owned two properties and spent most of their time in one rather than the other or if they moved out of their home to develop it. In such cases, CGT is calculated by reference to the proportion of time that the property was not the taxpayers main residence. So, for example, if Harry sold his home with a gain of £100,000 and it was only his main residence for 90% of the period he owned the property, CGT would (broadly) be due on 10% of the gain or £10,000.

Higgins v HMRC

In 2006, Mr Higgins entered into a contract for the purchase of a flat in an area of the former St Pancras station hotel. The flat had not yet been constructed and therefore Mr Higgins did not have any right to occupy it until January 2010 when he completed the purchase. HMRC argued that the time between exchange of contracts and completion, when works were being carried out, should be taken into account when calculating the CGT. As Mr Higgins could not live in the flat he would not receive PPR for this period, and therefore there would be CGT to pay.

Mr Higgins argued that his period of ownership should be calculated from when the contract was completed. If this was the case, no CGT would be due as Mr Higgins had lived in the property from the date of completion until he sold it.

The First Tier Tribunal agreed with Mr Higgins, and said that period of ownership should be given its ‘ordinary meaning’ and not include the time taken between the exchange of contracts and completion.

Pitfalls with PPR

If you are purchasing a property that is being developed before you complete the purchase, the Higgins case will be welcome news.

However, there are a number of factually similar cases where PPR may be denied, for example:

  • where a person completes a purchase and then undertakes substantial work on the property immediately after; or
  • where substantial work is carried out on a property later but during the ownership period.

If either is the case and you plan to sell your home in the near or medium future, it may be worth taking advice before undertaking the work so you fully understand your position.