Higgins v Revenue And Customs

For principal private residence relief under the Taxation of Chargeable Gains Act 1992, the “period of ownership” does not automatically begin when an unconditional purchase contract is exchanged. The statutory deeming rule for the timing of acquisition and disposal applies in its specific context and does not generally fix the relief period. In an ordinary home purchase, ownership begins on completion, when the purchaser can properly be described as owner and can occupy the property. This interpretation avoids denying full relief in the paradigm case of a home occupied throughout the period after completion. Equitable ownership can suffice, but a merely uncompleted contract does not itself confer ownership capable of making a property the individual’s only or main residence.

Mr Higgins contracted in 2006 to acquire a long lease of an apartment which had not yet been constructed. The apartment was completed and acquired on 5 January 2010, occupied as his main residence for two years, and sold in January 2012. HMRC assessed capital gains tax on the basis that his period of ownership began when the contract was exchanged.

The First-tier Tribunal allowed his appeal, holding that the period began on legal completion. The Upper Tribunal reversed that decision in [2018] UKUT 280 (TCC), holding that the period began on exchange under section 28 of the Taxation of Chargeable Gains Act 1992. The central issue before the Court of Appeal was the meaning of “period of ownership” for principal private residence relief.

Appeal allowed. Lord Justice Newey gave the substantive judgment, with Lord Justices David Richards and Patten agreeing.

1. For principal private residence relief under sections 222 and 223 of the Taxation of Chargeable Gains Act 1992, “period of ownership” ordinarily refers to the period during which the taxpayer owns the dwelling-house. It does not ordinarily include the interval between exchange and completion. A purchaser under an uncompleted contract cannot ordinarily possess, occupy or use the property as their only or main residence.
2. The HMRC construction would commonly deny full relief where a person bought and occupied a home as their only residence after completion. That result was inconsistent with the ordinary meaning of “ownership” and the evident purpose of the relief. The fact that the apartment did not physically exist when the contract was exchanged further supported the conclusion.
3. Section 28 of the Taxation of Chargeable Gains Act 1992 is a context-specific deeming provision. It fixes the timing of an acquisition or disposal effected under contract for the statutory purpose to which it is directed. It does not generally determine “period of ownership” under sections 222 and 223. The court relied on the limited approach to deeming provisions in Jerome v Kelly [2004] UKHL 25, Chaney v Watkis [1986] STC 89 and Marshall v Kerr [1993] STC 360, approved on appeal at [1995] AC 148.
4. Section 222(7) concerns successive interests where an earlier acquisition is taken into account in calculating allowable expenditure. It does not define “period of ownership” generally or import section 28 into sections 222 and 223. Nor can a person have more than one main residence at a time, although section 222(5) permits a choice between residences by notice.
5. Ownership need not be legal ownership. In a hypothetical bare-trust arrangement, the period might begin when the trustee acquired the property. That observation did not make a merely uncompleted contract sufficient in the present case. The First-tier Tribunal had adopted the correct interpretation and the appeal was allowed.

• Court of Appeal (Civil Division): Appeal allowed.
• Upper Tribunal (Tax and Chancery Chamber): In [2018] UKUT 280 (TCC), reversed the First-tier Tribunal and held that the period of ownership began on exchange of contracts.
• First-tier Tribunal: Allowed Mr Higgins’s appeal against the capital gains tax assessment and held that the period of ownership began on completion.