CGT and Main Residence Relief

It is well known that you don’t have to pay Capital Gains Tax (“CGT”) on the property you occupy as your own home, but what if you don’t occupy it immediately after buying it?

The recent case of Higgins v HMRC looked at this problem. Mr Higgins bought a flat off-plan in London in 2006, exchanging contracts on the purchase straight away. Bad timing. Construction was interrupted when the financial crash of 2008 came along and the flat was not finally finished, so that Mr Higgins could complete and move in, until 2010. In 2012, however, he was able to sell the flat for a substantial gain.

He must have been rather shocked, then, when HMRC assessed him for over £61,000 in CGT. They argued that, because under s28 of the Taxation of Chargeable Gains Act 1992 you acquire an asset when you become contractually bound to acquire it (the exchange of contracts) and because you only get relief from CGT on a property for the period of ownership when it was your “only or main residence” (from the time he moved in) the gain had to be apportioned and Mr Higgins got no relief for the period between exchange of contracts and completion.

Mr Higgins challenged this, arguing he should only be responsible for the gains from the date of completion, for which he had 100% relief. He won his case in the First Tier Tax Tribunal, but lost it on appeal to the Upper Tax Tribunal, so appealed again to the Court of Appeal. The point was made that, if HMRC were right, no-one would ever be entitled to 100% relief, as there was inevitably a delay, in any purchase of a home, between exchange of contracts and completion. The Court of Appeal agreed, and reversed the Upper Tax Tribunal’s decision, dismissing arguments that a loophole would thereby be created.

What is now to stop a purchaser of an off-plan apartment asking the seller to delay final completion, ensuring that the maximum market gain can be achieved, before having to actually move in and then sell on to realise the profit? I predict more yuppies living with their parents for an extended period before “cashing in” their new London flat!

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