Residential property tax roundup

Capital gains tax and off-plan sales

The Court of Appeal has recently confirmed that for the purposes of principal private residence relief (PPR) from capital gains tax, the period of ownership is treated as running from the date of completion of the purchase of the property until completion of the sale.

This means that in the context of an off-plan property, the completion of the purchase is the date of actual completion (ie when the buyer is able to take possession of the property, rather than the date of exchange of contracts).

In the case in question (Higgins v HMRC), the tax payer had contracted to buy an off plan flat in October 2006 at which point the flat was not constructed and he was only able to occupy it from January 2010 when he completed the purchase.

He sold it two years later and claimed PPR on the whole gain, which HMRC challenged due to the period between exchange of contracts and completion when the tax payer was not in occupation of the flat. The First-tier Tribunal agreed with the tax payer, stating that "period of ownership" could not include a period when it was impossible to occupy a property because it had not been built.

The decision was then reversed by the Upper Tribunal which ruled that the deemed date of acquisition should be the date of exchange of contracts. On appeal, the Court agreed with the First-tier Tribunal, noting that Parliament could not have intended "period of ownership" to begin from exchange of contracts, on the basis that this would mean that home owners would not be able to obtain full PPR because occupation usually begins on completion of the purchase only.

This seems like a common sense result. It will be interesting to see if HMRC decides to appeal the decision.

An extra 3% SDLT for overseas buyers

The Conservatives have pledged to impose an extra 3% SDLT on overseas buyers of residential property in England (ie for those who already own other residential property, an extra 3% on top of the extra 3% they are already required to pay!).

This will result in an effective top rate of SDLT of 18% for certain overseas buyers and represents a toughening of the earlier stance where an additional 1% was proposed for overseas buyers. This somewhat gentler proposal was consulted on by the government earlier this year. The additional funds raised are to be used to tackle homelessness.

It is questionable whether a further hike in SDLT will deter those overseas buyers who acquire the most expensive homes in London, but undoubtedly such an increase may prove something of a deterrent to those overseas buyers who have in recent years bought new build flats in off plan developments for use by themselves and their families, including their children who may be in the UK for educational purposes.

That could have an impact on the investment market and certain new developments many of which incorporate an element of affordable housing, and which are often kick-started by overseas investors, may struggle.

Claiming a refund of SDLT where the higher rate has been paid

A reminder that if a buyer is obliged to pay the higher rates of SDLT on the purchase of a home because he or she has not yet sold their existing home and cannot therefore be said to be "replacing" a main residence, there is an entitlement to claim a refund of the difference between the SDLT at standard rates and the additional rate sum that was paid, provided that the sale of the main home is completed within three years of the completion date of the purchase.

A refund can be claimed from HMRC by way of a simple application form giving details of the sale. The claim must be made within 12 months of completion of the sale.