Buying off-plan is risky

When you purchase a new property off-plan, you may put down a deposit to reserve the property before it is finished, or even started.

The contract to purchase the property is normally not completed until the property is finished, and at that time the balance of the purchase price must be paid. If you can’t pay the balance when requested, you lose the right to complete the contract and acquire the property. You will also lose your deposit.

In most cases you cannot set that loss against other capital gains you make. When you pay a deposit for an off-plan purchase you do not acquire an asset, so you have not disposed of an asset when the purchase fails to complete, so there is no capital loss.

If the contract you signed doesn’t permit you to assign the right to buy the property, you don’t have a contractual right. When that contract is broken, by you failing to pay the outstanding purchase price, your loss is ignored for tax purposes.

However, HMRC have the cards stacked in their favour when the taxpayer is a non-resident buying a residential property in the UK. In that case, the purchaser is treated as acquiring the property from the time he signs the off-plan contract, not from the completion of the deal to buy the property.

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