Example 1: Building a residence and living elsewhere
John buys a plot of land
in December 2010 for £100,000. He acquires planning permission to build his own
home and the building work starts in July 2012. The property is finally
completed in January 2014, and John moves into the property in February 2014.
John sold his previous
property in November 2010, using the proceeds to help fund the purchase of the
land and the building of the property. While the property was being built, John
lived in rented accommodation.
When does the PPR clock start?
From December 2010 until July 2012, John owned only the land, and any gain arising in this period does not qualify for relief and is taxable.
During the construction period, John was living elsewhere. The building work took 18 months, during which the conditions for PPR relief were not met. Any gain accruing in this time does not qualify for PPR relief.
John moved into the property in February 2014, and from that date used the property as his main residence. Assuming he continues to use the property as his only or main residence until its eventual sale, PPR relief will be available from February 2014. Any gain that relates to the period from December 2010 (when the plot of land was acquired) to January 2014 will not be exempt as the conditions for PPR relief are not met for that period.
Concessionary relief
By concession, HMRC will allow the PPR relief clock to start running earlier where an individual acquires land on which he has a house built and certain conditions are met.
Under the terms of the concession (ESC D49), HMRC will treat the period before the taxpayer used the property as his only or main home as being used as long as that period is not more than 12 months. This means that where a taxpayer buys a piece of land, has a house built and moves into the property no later than 12 months after the date on which the land was purchased, the PPR relief clock will start from the date on which the taxpayer bought the land. The concession treats the conditions for PPR relief as having been met during the period while the house was being built.
In exceptional circumstances, HMRC will extend this 12-month period for up to a maximum of two years if, for reasons beyond the taxpayer’s control, the taxpayer was unable to complete the house and move in within one year from the date of purchase of the land. The concession does not specify what reasons HMRC regard as acceptable in order to extend the 12-month period. However, in their Capital Gains manual, HMRC states (at CG65009):
“what constitutes a good reason for exceptional delay is a matter for the discretions of the Business Unit Head or Grade 6 Compliance Team leader. Normally, it would be expected that the delay would be caused by circumstances outside the individual’s control”.
The example in the same paragraph makes it clear that HMRC do not regard lack of funds as a good reason for exceptional delay (although the taxpayer may think otherwise). However, one would assume that HMRC would accept, for example, delays arising due to exceptionally poor weather, such as flooding, as being outside the taxpayer’s control.
Example 2: HMRC concession in action
Oliver buys a plot of land
in September 2013, on which he intends to have a new house built for himself
and his family. The building work commences in October 2013 and is completed in
May 2014. Oliver and his family move into their new home in June 2014.
The concessionary
treatment afforded by ESC D49 is in point. As the period from the date of
acquisition of the land (September 2013) to the date on which the family start
to use the new house as their only or main residence (June 2014) is less than
12 months, the PPR clock starts to run from September 2013 (the date the land
was acquired) rather than the date on which the taxpayer moved into the
property.
Thus where the intention is to buy a plot of land and build a home to be used as a main residence, it is important that the building work is started as soon as possible after acquiring the land, and that where at all possible the house is habitable within 12 months from the date on which the land was acquired. This will start the PPR relief clock from day one.
Delays in the building process can result in a loss of PPR relief, as where the project takes more than 12 months the PPR relief clock will not start until the taxpayer occupies the property unless the delay was due to exceptional circumstances beyond his control.
Relief for more than one property
While the new house is being built the taxpayer needs somewhere to live. If he continues to live in his previous main residence until the new house is built, selling it when the new house is complete, where the concessionary relief afforded by ESC D49 applies, the taxpayer may have two houses eligible for PPR relief while the new house is being built.
In this situation the taxpayer does not need to make an election to determine which property qualifies for relief. Where the relief is extended by ESC D49 to cover the building period, relief is given for both residences for that period. As long as the old home is sold within 18 months of moving into the new home (at which point it will be necessary to elect for the new home to be the main residence), full relief should be available for both properties (see CG65013).
Practical Tip :
When buying a plot of land on which to build a main residence, the PPR relief clock can start from the date on which the land is acquired as long as the house is built and occupied as the main residence within a 12-month window.
