Mark McLaughlin looks at a case on an important exception from the higher rate of stamp duty land tax.
A higher rate of stamp duty land tax (SDLT) applies (in England and Northern Ireland) to acquisitions involving a ‘higher threshold interest’ by a company (among others). This is broadly an interest in a single dwelling costing more than £500,000. The SDLT rate in such circumstances is 15% (FA 2003, Sch 4A, para 3).
Possible ‘let-outs’
These rules potentially catch many acquisitions of dwellings by companies. Fortunately, there are some important exceptions from the 15% charge if certain conditions are satisfied.
For example, the SDLT higher rate does not apply broadly if the ‘higher threshold’ dwelling is acquired exclusively for any of the following purposes (among others):
- As a rental property in a qualifying property rental business.
- For use in a commercial trade.
- For development or redevelopment and resale in a commercial property development trade.
-
For resale as trading stock in a trade that includes buying and selling dwellings.
Occupation by director
It might be thought that these exceptions would be easy enough to establish. However, in Forest Commercial Services Ltd v Revenue and Customs [2020] UKFTT 470 (TC), a claim for exception was considered to fall within the exception under the third bullet point above when the claim was made – but only just.
In that case, (which concerned a penalty for an error in an SDLT return), the appellant company (FCS) was a property developer, which exchanged contracts for the purchase of a four bedroomed detached bungalow (H) in Stamford in June 2016. The property had been advertised as requiring updating with development potential. FCS’s SDLT return was submitted on the basis that it purchased H for redevelopment and not at the higher rate of 15%. Around the time FCS was acquiring H, the sole director (SS) needed a suitable property to live in on a short-term basis while construction of his new home was being completed. SS and his wife temporarily moved into H in early July 2016. The new house finally completed in November 2016 when SS and his wife moved into it. HM Revenue and Customs sought to charge SDLT at 15% on FCS’s acquisition of H.
Lucky escape?
The First-tier Tribunal (FTT) noted that FCS would be liable to the higher SDLT rate as a ‘high value residential transaction’ unless relief applied as an acquisition exclusively for development or redevelopment and resale in a property development trade. However, the dwelling would not count as having been acquired exclusively for that purpose if it was intended that a non-qualifying individual would be permitted to occupy the dwelling. SS and his wife were non-qualifying individuals.
The FTT concluded that the likely scenario was FCS purchased H on a speculative basis to develop. It may have been in SS’s mind that he and his family could (possibly several years later) move into the property, but it would be wrong to say there was an established intention. The SDLT return was submitted relatively quickly after completion on 20 June 2016 when SS and his wife were looking for temporary rented property, and their decision to occupy H was taken in early July 2016. FCS’s appeal was allowed.
Practical tip
HMRC’s guidance in its SDLT manual (at SDLTM09560) includes examples of circumstances in which the higher rate of 15% will and will not apply in relation to acquisitions by businesses of letting, trading in or redeveloping properties.
