Private Residence Relief woes when you buy off-plan

A recent tax case is likely to be a concern to anyone that lives in a property that was purchased off-plan. This case established that the date of purchase of an off-plan property can be the date that the deposit is paid, but Private Residence Relief (PRR) can only be claimed from the date that the property is completed and occupied.

The best way to illustrate this point is with an example. Let us say that Sam put a £1,000 deposit down on a property on 1st January 2016. This property was not yet complete, and the deposit was paid on the basis of plans, a show home, and some expert marketing.

After some delays the property was finally completed and Sam moved in on 1st January 2018. At this point £400,000 was paid for the property.

Having waited so long for the property, Sam’s circumstances had changed. The property was put on the market. On 1st January 2019 the property was sold for £500,000 and Sam moved on to pastures new.

How much tax will Sam pay? Logic would say that Sam purchased the property on 1st January 2018, lived in the property, and sold the property one year later. As Sam lived in the property for the whole period of ownership full PRR is due and no tax is payable. But this is not the case.

The recent tax case found that when the deposit was paid an unconditional contract to purchase the property was entered into, creating a purchase date for tax purposes.

If we apply this to Sam’s circumstances, Sam owned the property for three years but only lived in it for one year, giving rise to a tax liability of some £15,000.

What can be done?

The core of the problem is when a purchase date is created for tax purposes. This is when all the conditions of a contract are met. So, when a property is purchased off-plan, the purchase should be conditional. The most obvious condition to attach to the purchase would be that the property needs to completed.

If you have already purchased a property off-plan, be aware that this is a tax risk area.

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Chris Thomas

Chris Thomas

Senior Tax Adviser at Wilson Wright
Telephone+44 (0)20 7832 0444