Capital Gains Tax  

The CGT consequences of buying a 'space in a tower'

  • Explain how Principal Private Residence relief works
  • Describe what happened in the case of Mr Higgins
  • Describe how PPR flipping works
The CGT consequences of buying a 'space in a tower'

There is nothing new in buying property off-plan.

The phrase “contract for an off-plan purchase” entered the statute book in 2015 where it means “a contract for the acquisition of land consisting of, or including, a building or part of a building that is to be constructed or adapted for use as a dwelling” (Finance Act 2015 Sch. 7(1) para 36).

It has become, however, increasingly popular in recent times, it being harder for property developers to raise capital from the banks since the credit crunch of 2008.

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These contracts represent an attractive proposition to buyers because of the substantial up-front discounts on price that they command.

We are told by Lewis Carroll in Through a Looking Glass, of an egg that gets larger and larger and more and more human, but the possible absurdity of a non-existent property presenting a capital gains tax problem for someone looking for somewhere to live is something that the First Tier Tax Tribunal had to grapple with in 2017.

This issue then reached the Upper Tribunal (Tax and Chancery Chamber) in 2018 and the Court of Appeal last month. “There's glory for you!” as Humpty Dumpty would say.

The case is Desmond Higgins v The Commissioners for Her Majesty's Revenue & Customs and the Court of Appeal’s judgment was delivered on 4 November 2019.

The facts

In 2004 Mr Higgins paid a reservation deposit to secure a right to be granted a lease of an apartment at 4.24 St Pancras Chambers, Kings Cross, London N1.

The building is the former St Pancras Station Hotel.

On 2 October 2006, issues relating to title to the site having been sorted, Mr Higgins entered into a contract to take a 125 year lease of 4.24, which was, in the words of FTT, “a space in a tower”.

The purchase price was £575,000 less the payment already made and Mr Higgins paid £52,000 by way of deposit on exchange of contracts.

Another deposit, of £57,500, was due on 1 March 2007 and the balance of £460,000 on completion.

Completion was set at 10 working days of Mr Higgins being notified that the development had been substantially completed.

The 2008 credit crunch delayed the construction which led the developer to seek alternative finance.

The construction of 4.24 finally began in November 2009 and the apartment was substantially completed physically the next month.

On 18 December, Mr Higgins was notified that the purchase was to be completed on 5 January 2010 which it was.

Mr Higgins had no right to occupy the apartment before that date; when he did, he did so as his main residence until 5 January 2012.

He had contracted to sell on 15 December 2011 and the sale was completed on 5 January 2012.

HMRC assessed Mr Higgins to CGT on the basis that 4.24 had not been his only or main residence for all of his “period of ownership” and therefore principal private residence relief (PPR) was only available to exempt part of the gain.