Good sense prevails in PPR claim!

From time to time, HMRC has sought to apply tax legislation and their own guidance in an extremely literal and non-commonsensical way. This approach is best demonstrated in the recent tax case of Mr Higgins involving Principal Private Residence (‘PPR’) relief.



PPR relief enables taxpayers to sell their main residence without having to pay capital gains tax (‘CGT’). The relief is usually given to periods of actual occupation or deemed occupation, although it is generally restricted for periods of non-occupation.

As a general rule, a taxpayer should take up residence as soon as he acquires a main residence. However, there is an HMRC concession (ESC D49) which allows for a taxpayer’s home to be eligible for PPR even when the prospective residents have yet to occupy it. This concession is given when a taxpayer buys land and then has a house constructed on it, and it can be granted for up to two years.

In the case of Mr Higgins, HMRC denied PPR relief for a four-year period between exchange of contracts and completion (when works were being carried out) on the basis that the above concession only extends to two years.



Mr Higgins entered into a contract to purchase a flat in London in 2006, at which point the property had yet to be built. The 2008 credit crunch led to significant delays which meant that construction  works were only completed  in 2010 and Mr Higgins was only able to occupy the flat in January 2010. He then occupied the property until its eventual  sale in 2012.

HMRC cited ESC D49, under which the two-year concession was clearly breached. They argued that the period should be taken into account in calculating the gain and since Mr Higgins did not occupy the property within the two-year window, he would not qualify for PPR from 2006 to 2010. This would result in a significant CGT liability.

However, the First Tier Tribunal held that it would be ‘absurd’ for HMRC to tax a gain during a period where the flat was ‘literally a space in a tower’. The Tribunal said that the period of ‘ownership’ should be given its ordinary meaning, thus not including the time taken between the exchange of contracts and completion. Consequently Mr Higgins was entitled to full PPR relief as he took up occupation as soon as he was legally and physically able to do so, and the fact that there was a significant delay before was no fault of his.

Moreover, the Tribunal concluded that ESC D49 did not affect the position here as it is a concession which is not meant to be restrictive.


Final thought

This is a welcome bit of common sense at a time when tribunals and courts seem to be more frequently finding against the taxpayer on grounds which appear to be unfair. It is also a timely reminder that concessions are meant to be helpful rather than restrictive. In the above case, assistance was found from the legislation and a friendly interpretation of what ownership actually meant in the context of a flat which had not yet been built.




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