Peter Vaines mulls over the implications of the General Election for the Finance Act(s) and points out that, while the taxpayer had a good result in a recent PPR case, the implications may not always be beneficial.
The General Election on 8th June does not leave a lot of time for Parliament to give consideration to the longest Finance Bill in history – and one which contains such profound changes. In fact, I understand that Parliament will be prorogued on 3 May.
I note that the controversial proposals regarding probate fees have been abandoned. Also, all the stuff about non doms has been removed from the Bill – and a whole lot else has gone. I am not holding my breath because after the election there will assuredly be another Finance Bill and everything will be put back in. I cannot imagine that it will all be forgotten. I suppose it will all be retroactive to 6th April, but it would be good if the changes were deferred for a year. We can hope I suppose.
But it seems to me that whatever they do, there will be some serious issues. What if a foreign resident and foreign domiciled person dies now owning shares in an offshore company containing an UK residential property? Is it liable to IHT? One might say no, because on the law as it stands he is in possession of excluded property. Or can he be taxed after he dies on the basis of a law introduced after he is dead and backdated so as to be operative for a period before he died.
I do hope not. President X in the Democratic Republic of X would just love to say that his laws are the same as ours. No need to imprison people on trumped up charges. Pass a new law saying that it applies for the last 5 years and you can confiscate anybody’s assets whilst claiming that it is the will of Parliament.
Period of Ownership for Only or Main Residence Relief
The case of Higgins v HMRC TC 5724 provides a new twist on the normal arguments regarding the relief for the only or main residence.
In October 2006, Mr Higgins entered into a contract for the purchase of a leasehold apartment, off plan. Completion was not of course, going to take place until the building had been completed. Completion occurred in January 2010 and Mr Higgins moved in. He subsequently sold the flat and claimed the private residence exemption under TCGA 1992 s 222 on the grounds that it was his only or main residence throughout his period of ownership.
HMRC accepted that the relief applied for the period in which he occupied the property as a residence. However, they said that his period of ownership did not start on completion; it started on exchange of contracts so for a very large chunk of his period of ownership, the property was not his residence.
HMRC drew attention to TCGA 1992 s 28 which provides that for capital gains tax purposes, an asset is acquired at the time the contract is made and not when it is conveyed to him.
Although this sounds straightforward, it was a bit of a problem here because at the date of exchange of contracts, the flat did not exist – it had not yet been built - so it is a bit difficult to say that Mr Higgins was deemed to acquire an asset at a time when it did not exist. However, I suppose that’s what you get with deeming provisions.
The Tribunal held that a distinction should be made between the time of acquisition in TCGA 1992 s 28 and the meaning of “period of ownership” in TCGA 1992 s 222. Accordingly, they decided that his period of ownership should begin on the day of completion when the he had the right to occupy the property. (I hereby withdraw my sniffy comments last month when I said that the taxpayer never seems to get the benefit of a purposive interpretation.)
I remember that a similar issue arose in Campbell Connelly v Barnett 66 TC 380 in dealing with rollover relief under TCGA 1992 s 154, and the requirement that the replacement asset was taken into use “on acquisition” (which under s 28 would be on exchange of contracts). The court held that acquisition meant completed acquisitions, not those which still lie in contract.
I always found this conclusion difficult because that seems to be exactly what section 28 was designed for. However, the case of Higgins reinforces that position and it will be interesting to see in what circumstances s 28 can ever apply in future. It will certainly cause a problem in those circumstances where s 28 is being used to ensure that a disposal takes place in a convenient year.