Insights

Buying off plan can be a very attractive option, especially for first time buyers seeking their first home. There are pros and cons, but one of the biggest plus points is the affordability and often the discounts available. One thing that buyers might not be thinking about initially though is moving on in the future. This is an aspect of buying off plan that could have tax implications when it comes to eligibility for Principal Private Residence or PPR property tax relief.

When you sell your home, there is usually no capital gains tax to pay if you make a profit, provided you are eligible for PPR relief. In the case of an off-plan property, things can become complicated as the recent case involving Desmond Higgins highlights. Luckily it had a happy ending for Mr Higgins, but not before a lot of wrangling with HMRC.

Eligible for PPR property tax relief? Higgins vs HMRC case history

Mr Higgins bought an off-plan property within the redevelopment of St Pancras Station in 2006. He paid his deposit and at that time the property did not exist; construction had yet to commence. Due to economic challenges, the apartment completion was substantially delayed and there was a three-year gap between payment of the deposit and building work starting in 2009. Once the building finished and the sale completed Mr Higgins went on to live in the apartment for two years, selling it in 2012 and claiming PPR relief on his gains.

HMRC claimed Mr Higgins was not eligible for PPR relief for the whole period of ownership because of the substantial time lapse between him technically owning the property and actually living there. Clearly, he couldn’t have made it his residence in the interim because it wasn’t habitable, but this didn’t seem to matter to HMRC. Mr Higgins had to take the case to the First Tier Tribunal and ultimately to the Court of Appeal before he got the outcome he was looking for; a ruling that PPR property tax relief should be fully available.

Although the Higgins vs HMRC ultimately ruled in favour of Mr Higgins, it will be interesting to see whether the rules concerning PPR and off-plan property are further clarified in the coming Budget, due to take place on 11 March 2020.

Revisions to PPR property tax relief legislation – 9-month period and lettings relief

Under current rules, provided that a property has at some point been the owner's only or main home, the last 18 months of ownership qualify for PPR property tax relief, whether or not the owner remains living in the property during this period.

From 6 April 2020, the PPR rules will be restricted and the maximum time period allowed for an owner to be absent from their main home and still receive PPR relief, is the last 9 months of ownership. Any longer period will attract capital gains tax on a portion of the gain. Note, this excludes disposals by those who have moved to a care home or who are disabled, in which case the original 36-month timeframe still applies.

In addition to this restriction, lettings relief is also being restricted and from 6 April 2020 will be reformed so that it only applies where the owner is in shared occupation with the tenant. This means there will be no entitlement to lettings relief unless the owner also lives in the property when it is rented out.

Disposals to mitigate the impact of CGT

For taxpayers who are considering a disposal to mitigate the future impact of the new PPR rules effective from 6 April, it is worth noting that the tax point for CGT purposes is the date an unconditional contract is signed (the date of exchange) and not the date of completion. Provided therefore you have entered into an unconditional contract to dispose of property by 5 April you are still able to claim the reliefs that are currently available.

For buyers, being aware of these tax changes may mean you are in a strong negotiating position, depending on the seller’s circumstances.

For more information about PPR property tax relief and other aspects of property tax, email partners@rjp.co.uk