Property investors must pay capital gains tax on homes that no one could live in because they had not been built, according to a tax tribunal ruling.
A shocked owner has been landed with a £61,383 tax bill after selling a home he could not move into for six years because the apartment was still under construction.
Desmond Higgins put a deposit down on the flat in 2004. He paid the builder two more sums in 2006 and 2007, while the property was being built, but the developer could not complete the flat until January 2010, when he moved in.
In 2012, Higgins sold his home – and HM Revenue & Customs sent him the capital gains tax bill.
HMRC argued that the property had gained in value between 2004 and 2010 and principle private residence relief only applied to the time he lived in the apartment.
PPR tax relief did not apply
PPR exempts property owners from paying CGT on their main home for the time they lived there plus 18 months.
Higgins appealed the CGT assessment to the First Tier Tribunal, claiming he was entitled to full relief because he always intended the property to be his main home even though it was under construction and he could not move in.
The tribunal agreed and upheld his argument, but HMRC appealed the case to the Upper Tribunal.
The tribunal rejected his argument and found in favour of HMRC.
Flat sold for £1.215 million
Hearing the appeal, Justice Vivien rose and Judge Jonathan Cannan said in the ruling that Higgins’ period of ownership applies to the date from which someone has legally completed the purchase and has a right to occupy, not the date they physically move in.
The apartment was part of the St Pancras Station Hotel development in North London. Higgins bought the property for £575,000 and sold for £1.215 million.
Between July 2007 and January 2010, Higgins spent some time living with his parents, some time travelling and some living in a buy to let home he owned.