Desmond Higgins v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice David Richards,Lord Justice Patten |
| Judgment Date | 04 November 2019 |
| Neutral Citation | [2019] EWCA Civ 1860 |
| Docket Number | Case No: A3/2018/3031 |
| Court | Court of Appeal (Civil Division) |
| Date | 04 November 2019 |
[2019] EWCA Civ 1860
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mrs Justice Rose and Judge Jonathan Cannan
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten
Lord Justice David Richards
and
Lord Justice Newey
Case No: A3/2018/3031
Miss Nicola Shaw QC and Mr Samuel Brodsky (instructed by Fieldfisher LLP) for the Appellant
Mr Christopher Stone and Mr Nicholas Macklam (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing date: 15 October 2019
Approved Judgment
This case concerns principal private residence relief from capital gains tax (“CGT”). Following his sale of a property which had been his home, HM Revenue and Customs (“HMRC”) assessed the appellant, Mr Desmond Higgins, to CGT of £61,383.48 on the basis that the property had not been his only or main residence for all of his “period of ownership”. Mr Higgins successfully appealed to the First-tier Tribunal (“the FTT”) (Judge Heather Gething and Mrs Helen Myerscough), but the Upper Tribunal (“the UT”) (Rose J and Judge Jonathan Cannan) reversed the FTT. Mr Higgins now challenges the UT's decision.
The facts
On 2 October 2006, Mr Higgins entered into a contract to take a 125-year lease of an apartment (“the Apartment”) from Manhattan Loft St Pancras Apartments Limited (“Manhattan”). The Apartment was to be in the former St Pancras Station Hotel, which Manhattan was converting. At the date of the contract, the area which was to become the Apartment was, in the FTT's words, “a space in a tower”.
The purchase price was £575,000. Mr Higgins had already made a payment of £5,000 as a reservation deposit and he paid a further £52,500 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.
The contract provided for Manhattan to “complete the refurbishment and/or construction of the Apartment in a good and workmanlike manner” in accordance with, among other things, the terms of the relevant planning permission and listed building consent and an “Interior Specification Sheet”.
By clause 5, the contract was to be completed within 10 working days of Mr Higgins being notified that the Apartment had been substantially completed.
The development was delayed by the 2008 credit crunch, which led Manhattan to seek alternative finance. It was not until November 2009 that work began to construct the Apartment and it was substantially completed physically the following month.
On 18 December 2009, Mr Higgins was informed by Manhattan that the purchase was to be completed on 5 January 2010, and it in fact was. Mr Higgins had no right to occupy the Apartment before that latter date.
Mr Higgins occupied the Apartment as his main residence from 5 January 2010 until 5 January 2012. He had contracted to sell the Apartment on 15 December 2011 and the sale was completed on 5 January 2012.
Mr Higgins had sold his former residence in July 2007. Between then and January 2010, his residential arrangements varied. He stayed with his parents for some of the time, travelled for some of the time and stayed in another apartment which he owned and which had previously been occupied by a tenant. The FTT found as a fact that there was no other dwelling which Mr Higgins regarded as his main residence in the period from July 2007 to January 2010.
The statutory framework
Principal private residence relief is provided for by sections 222 and 223 of the Taxation of Chargeable Gains Act 1992 (“the TCGA”). Section 222(1) explains that the section applies to:
“a gain accruing to an individual so far as attributable to the disposal of, or of an interest in—
(a) a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence …”.
The extent to which a gain to which section 222 is applicable is relieved of liability is prescribed by section 223. So far as relevant, that was in these terms at the material time:
“(1) No part of a gain to which section 222 applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual's only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period.
(2) Where subsection (1) above does not apply, a fraction of the gain shall not be a chargeable gain, and that fraction shall be—
(a) the length of the part or parts of the period of ownership during which the dwelling-house or the part of the dwelling-house was the individual's only or main residence, but inclusive of the last 36 months of the period of ownership in any event, divided by
(b) the length of the period of ownership.”
We were also taken to subsections (5), (6) and (7) of section 222, which during the relevant period provided as follows:
“(5) So far as it is necessary for the purposes of this section to determine which of 2 or more residences is an individual's main residence for any period—
(a) the individual may conclude that question by notice to an officer of the Board given within 2 years from the beginning of that period but subject to a right to vary that notice by a further notice to an officer of the Board as respects any period beginning not earlier than 2 years before the giving of the further notice ….
(6) In the case of an individual living with his spouse or civil partner —
(a) there can only be one residence or main residence for both, so long as living together and, where a notice under subsection (5)(a) above affects both the individual and his spouse or civil partner, it must be given by both ….
(7) In this section and sections 223 to 226, ‘ the period of ownership’ where the individual has had different interests at different times shall be taken to begin from the first acquisition taken into account in arriving at the expenditure which under Chapter III of Part II is allowable as a deduction in the computation of the gain to which this section applies, and in the case of an individual living with his spouse or civil partner —
(a) if the one disposes of, or of his or her interest in, the dwelling-house or part of a dwelling-house which is their only or main residence to the other, and in particular if it passes on death to the other as legatee, the other's period of ownership shall begin with the beginning of the period of ownership of the one making the disposal, and
(b) if paragraph (a) above applies, but the dwelling-house or part of a dwelling-house was not the only or main residence of both throughout the period of ownership of the one making the disposal, account shall be taken of any part of that period during which it was his only or main residence as if it was also that of the other.”
Section 28 featured prominently in argument as well. It states:
“(1) Subject to section 22(2), and subsection (2) below, where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).
(2) If the contract is conditional (and in particular if it is conditional on the exercise of an option) the time at which the disposal and acquisition is made is the time when the condition is satisfied.”
The decisions below
The FTT concluded that principal private residence relief relieved Mr Higgins from any liability to CGT on his sale of the Apartment. In the FTT's view (see paragraph 6(10) of its decision):
“The period of ownership for the purpose of sections 222 and 223 began when Mr Higgins owned the legal and equitable interest in the lease of the Apartment and owned the legal right to occupy the Apartment. That was the date of legal completion of the purchase of the lease on 5 January 2010. The period of ownership ended on the 5th January 2012 when the contract for sale (entered into on 15 December 2011) was completed.”
The UT disagreed. The UT considered that the FTT had been “wrong to find that the period of ownership could only begin when Mr Higgins had legal title to the Apartment and a legal right to occupy the Apartment” (see paragraph 47 of its decision). As the UT saw things, the relevant “period of ownership” had begun on the exchange of contracts in 2006. It explained as follows in paragraph 40:
“In simple terms, the gain realised on a disposal is the difference between the acquisition cost and the disposal proceeds. Those figures are determined when unconditional contracts for the purchase and sale are exchanged. In the present case, the acquisition cost and the disposal proceeds were fixed on 2 October 2006 and 15 December 2011 respectively when unconditional contracts were exchanged. Those are also the dates of acquisition and disposal for capital gains tax purposes by virtue of section 28 TCGA 1992. The gain which is potentially taxable accrued over that period and Mr Higgins enjoyed the benefit of the increase in value of his asset over that period. However the asset was not Mr Higgins' main residence prior to 5 January 2010.”
The UT further observed that “upon exchange of contracts and payment of the first deposit Mr Higgins did have an equitable interest” (paragraph 51), that “in October 2006 Mr Higgins obtained an interest in the headlease which later became an interest in the Apartment when it was constructed” (paragraph 51) and that “from 1 March 2007 when the second deposit was paid Mr Higgins had an asset which he could dispose of by way of sub-sale” (paragraph 52).
Discussion
The central question on this appeal is...
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