Summary

The appellant’s period of ownership of an apartment for private residence relief purposes (under TCGA 1992, ss 222, 223) began when he owned the legal and equitable interest in the lease of the apartment and the legal right to occupy it, being the date of legal completion of the purchase of the lease. His period of ownership ended when the contract for its sale was completed.

Background

On 2 October 2006, the appellant entered into a contract to lease the apartment. The apartment did not exist in 2006; the area which was to become the apartment was a space in a tower.

The work on the area that became the apartment began in November 2009. The apartment was substantially physically completed in December 2009, when the appellant was informed that legal completion was scheduled to occur on 5 January 2010. The appellant had no right to occupy the dwelling until that date when he completed the purchase.

No other dwelling was occupied that the appellant regarded as his principal private residence throughout the period July 2007 to January 2010. He occupied the apartment as his principal private residence from 5 January 2010. He entered into a contract for the sale of the apartment on 15 December 2011, and its sale was completed in January 2012.

HM Revenue and Customs (HMRC) assessed that the appellant was liable to capital gains tax of £61,383 on the gain he realised on the disposal of the apartment. HMRC considered that the appellant’s period of ownership commenced at the date of the contract to acquire the lease of the apartment, and ended at the date of the agreement to sell. The time of disposal and acquisition was determined (under TCGA 1992, s 28(1)) by the date of the contract to acquire and dispose of. Consequently, the appellant’s period of ownership began on 2 October 2006 (not  5  January  2010) and ended on 15 December 2011 (not 5 January 2012). The appellant appealed.

The arguments for the appellant included that for principal private residence purposes his period of ownership (under TCGA 1992, s 223) began on 5 January 2010, upon legal completion of the lease of the apartment. The appellant occupied the flat as soon as he was legally able at the completion of the purchase, and he occupied the apartment for the purpose for which the relief was granted.

Decision – Private Residence Relief

The First-tier Tribunal (FTT) considered (among other things) that the ordinary meaning of ‘period of ownership’ should be applied in TCGA 1992, ss 222 and 223. The FTT also considered that when the legislation was construed purposely and applied to the facts viewed realistically (in accordance with BMBF  v Mawson [2005] STC 1) the appellant was entitled to relief. He acquired the apartment, which was a dwelling he occupied as a principal private residence as soon as he was legally and physically able, and did so until he completed its sale in January 2012.

The FTT also considered that s 28 was not directly involved in determining the meaning of ‘period of ownership’ of a dwelling house in the context of the availability of principal private residence relief. To say the period of ownership began when a contract to acquire the dwelling was entered into, at which time it would be highly unusual for a purchaser to have a right to occupy, would be ‘perverse’ in the context  of providing relief to individuals for gains realised on the sale of a principal  private residence.

The FTT concluded that the appellant’s period of ownership for the purposes of ss 222 and 223 began when he owned the legal and equitable interest in the lease of the apartment and owned the legal right to occupy it. That was the date of legal completion of the purchase of the lease on 5 January 2010. The period of ownership ended on 5 January 2012 when the contract for sale was completed. The appellant’s appeal was allowed.

Comment

The FTT’s decision (although not a binding precedent, and subject to any appeal) is potentially good news for putative purchasers of dwellings ‘off-plan’ where there is a significant delay between entering into a contract for its purchase and completion of the contract in similar circumstances.