fbpx

Off-Plan Flat Buyer Wins Full CGT Relief in Test Case

29th January 2020 By

Can a purchaser of a property be said to ‘own’ it after contracts are exchanged but before the transaction is completed? The Court of Appeal’s answer to that fundamental question delivered a substantial Capital Gains Tax (CGT) saving to an off-plan flat buyer.

In 2006, the buyer entered into a contract to take a 125-year lease of a flat at a price of £575,000, paying a 10 per cent deposit. It was at that time no more than an empty space. The development was delayed by the credit crunch and it was not until 2010 that the purchase was completed and the buyer moved in.

The buyer occupied the flat for two years before selling it. In reliance on Sections 222 and 223 of the Taxation of Chargeable Gains Act 1992, he claimed that no CGT was payable on the transaction because the flat was his main residence throughout his period of ownership.

In raising a demand for £61,383 in CGT against him, however, HM Revenue and Customs (HMRC) took the view that he became the flat’s owner on exchange of contracts in 2006. His CGT relief was accordingly reduced in proportion to the period thereafter when he was not occupying the property. The buyer successfully appealed against the demand to the First-tier Tribunal, but that ruling was subsequently reversed by the Upper Tribunal.

In upholding the buyer’s challenge to that outcome, the Court found that HMRC’s interpretation of the phrase ‘period of ownership’, as it appears in Section 223, would have perverse results. Lengthy gaps between exchange of contracts and completion of property transactions are by no means uncommon and, if HMRC’s arguments were correct, ordinary homeowners would rarely qualify for full CGT relief. Such a result, the Court found, would not accord with the intention of Parliament.

The Court ruled that a person who contracts to buy a property cannot be said to own it, in that he will generally have no right to possess, occupy or use it, let alone make it his only or main residence, prior to completion. The flat in question did not come into existence as a habitable property until shortly before the buyer moved in and his period of ownership thus did not commence until the date of completion. He was therefore entitled to full CGT relief on the sale of the property.

Source: Concious

Latest News

Tenants Can Purchase Freehold When Landlord Cannot Be Found

11th June, 2024 By

The Leasehold Reform, Housing and Urban Development Act 1993 gives qualifying leaseholders the right to join together to buy the freehold of their properties – a process known as collective enfranchisement. A recent case demonstrated that this right can be exercised even when the landlord cannot be found. The leaseholders of two flats in a terraced house wished to purchase it from the landlord, but were unable to ascertain his whereabouts and therefore could not serve notice on him under Section 13 of the Act. They therefore applied for an...

Court Refuses to Set Aside Divorce Order Applied for by Mistake

6th June, 2024 By

While the courts have a range of powers to set aside orders, they will only exercise them in limited circumstances. In a somewhat surprising case that has attracted much comment, the High Court declined to set aside a final order of divorce that had been applied for by mistake. A couple separated in January 2023, after more than 21 years of marriage. In October that year, while financial remedy proceedings were still ongoing, the wife's legal representatives inadvertently applied for a final order of divorce in respect of her instead...

Waiting Time for Grants of Probate Falls

3rd June, 2024 By

Following concerns last year about delays in processing probate applications, recent figures from HM Courts and Tribunals Service show that waiting times for grants of probate are continuing to improve. The average time from submission of a probate application to probate being granted fell to 11.3 weeks in March 2024, a decrease from 13.7 weeks in February and 13.8 weeks in January. This is the lowest figure since March 2023, when the average was 10.8 weeks. The longest waiting time since then was in November, at 15.8 weeks: that month,...

Late Appeal Against Tax Penalties Rejected

31st May, 2024 By

It is incumbent on taxpayers to make sure they fully comply with their obligations to file returns and pay any tax due. The point was illustrated by a recent case in which a taxpayer whose return had not been received by HM Revenue and Customs (HMRC) failed to persuade the First-tier Tribunal (FTT) that he should be permitted to appeal against the resulting penalties. On the evening of 31 January 2014, the man had completed his 2012/13 Income Tax return on HMRC's website. Shortly afterwards he went to Cyprus, and...