The Upper Tribunal has recently overruled what was considered to be a sensible First-tier Tribunal decision on the period of ownership for the purposes of calculating principal private residence relief (PPR) from CGT on the sale of a property bought off-plan. In this case, contracts were exchanged in 2006 for an off-plan purchase of an apartment but completion did not take place until 2010 following delays in construction of the property. The owner moved in and then sold the property two years later claiming PPR on the whole of the gain on the property.
However, for the gain to be fully exempt, the property must have been occupied as the taxpayer's only or main residence throughout his period of ownership. The Upper Tribunal has held that, consistent with normal CGT principles, ownership commences on exchange of contracts, including for the purposes of PPR. Clearly it is not possible for someone to occupy a property as their main residence before it is built and so the First-tier Tribunal had applied a purposive construction to the meaning of "period of ownership" in the context of PPR. They had held that the period of ownership only began when it was possible for the purchaser to physically occupy it. That decision has now been overturned and so anyone buying a property off-plan before the property has been constructed should be aware that any gain on the property may not fully qualify for tax relief when the property is eventually sold on.