Higher and Super Rate Cases

(Case Law)

Understanding the Ambiguity

The higher rate and super rate SDLT are fraught with confusion for several reasons. First, the legislation itself is complex, with its applicability hinging on various conditions and thresholds that can be difficult to interpret.

Second, the rapid evolution of property markets and property holding structures adds layers of complexity to an already intricate tax regime. This has led to a significant number of disputes making their way to tribunals, as both taxpayers and HMRC seek clarity on the law’s application in specific circumstances.

Impact on HMRC Policy

The tribunal cases discussed in this section are more than just legal battles; they are instrumental in shaping both internal and external HMRC policy. Through these decisions, HMRC gains insights into how its guidance and rules are interpreted in the real world, allowing for adjustments and clarifications to be made. For taxpayers, these cases serve as important precedents, offering clearer guidelines on how to comply with SDLT regulations and avoid costly disputes. In essence, each case contributes to the ongoing dialogue between tax law as written and its application in practice, gradually refining the understanding of both parties.

15% SDLT Case: Tribunal Upholds Accuracy of SDLT Return, Citing Company’s Redevelopment Intent for Property Sale Over Personal Use

(Case Law>Higher and Super Rate Cases)

Forest Commercial Services Ltd v Revenue & Customs (Stamp Duty Land Tax – Penalty for inaccurate SDLT return) [2020] UKFTT 470 (TC) (17 November 2020). Cite as: [2020] UKFTT 470 (TC). 

URL: https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07944.html 

➤ A company’s initial intent to redevelop a property for sale, not personal use, can validate an SDLT return and contest penalties for inaccuracies.

Introduction
Forest Commercial Services Ltd successfully appealed against a penalty for an alleged inaccurate Stamp Duty Land Tax (SDLT) return related to a property redevelopment project.

Example scenario where this case law principle is relevant
This principle applies in situations where a company purchases property for redevelopment and claims SDLT relief, but later faces penalties due to alleged inaccuracies in their tax return. It underscores the importance of proving the initial intent behind property acquisition and the impact of subsequent events on SDLT liabilities.

The legal principles agreed upon
The tribunal agreed that the SDLT return was accurate at the time of submission, based on the company’s intent to redevelop the property for sale, not personal use. The penalty was contested on the grounds that the company’s initial intent did not include personal occupation, which was a later, unforeseen necessity.

General summary
Forest Commercial Services Ltd (FCS) bought a property with the intention of redevelopment and resale, claiming SDLT relief based on this purpose. However, HMRC issued a penalty after FCS’s director temporarily lived in the property due to personal circumstances, arguing this constituted a deliberate inaccuracy in the SDLT return. 

FCS appealed, stating the temporary occupation was unplanned and did not reflect their initial intent. The tribunal examined the timeline and intentions at the property’s purchase, concluding that the initial SDLT return was accurate and the penalty was unjustified. 

The appeal highlighted the complexity of SDLT regulations, especially regarding property redevelopment and personal occupation. The decision underscores the need for clear evidence of initial intent and the impact of unforeseen circumstances on tax liabilities.

15% SDLT Case: Properties Converted for Commercial Use Lose Stamp Duty Relief Eligibility

(Case Law>Higher and Super Rate Cases)

Goode Cuisine Company Ltd v Revenue and Customs (STAMP DUTY : Land tax) [2018] UKFTT 163 (TC) (28 March 2018). Cite as: [2018] UKFTT 163 (TC), [2018] STI 1082, [2018] SFTD 964. 

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06416.html 

➤ A property loses SDLT relief eligibility if converted from a residential “dwelling” to a commercial use like a bed and breakfast.

Introduction
This case involves Goode Cuisine Company Ltd’s appeal against an additional Stamp Duty Land Tax (SDLT) charge on a property intended for bed and breakfast conversion.

Example scenario where this case law principle is relevant
In a situation where a company purchases a residential property to convert it into a commercial establishment like a bed and breakfast, this case law principle would determine if the company qualifies for SDLT relief based on the property’s intended use.

The legal principles agreed upon
The main legal principle established is that for a property transaction to qualify for SDLT relief under Schedule 4A of the Finance Act 2003, the property must not only be intended for commercial use but must also retain its status as a “dwelling” when made available to the public. The case clarified that properties converted to non-residential use, such as hotels or bed and breakfasts, do not qualify for the relief because they cease to be “dwellings.”

General summary
Goode Cuisine Company Ltd purchased a property with the intention of converting it into a bed and breakfast, part of its existing business. The company sought relief from a higher 15% SDLT rate, applicable to corporate purchases above £500,000, arguing that the property’s conversion and intended use met the criteria for relief under Schedule 4A of the Finance Act 2003. 

However, the key issue was whether the property, upon conversion to bed and breakfast accommodation, would still be considered a “dwelling” for the purposes of SDLT relief. The tribunal concluded that once converted, the property would no longer be a “dwelling” as defined by the legislation, and therefore, the company was not entitled to the relief. This decision was based on the interpretation of “dwelling” within the legal framework, emphasising that the property’s status at the time of making it available to the public is important for SDLT relief eligibility. The appeal was dismissed, and the additional SDLT charge upheld, providing a clear precedent on how properties intended for commercial conversion are treated under SDLT regulations.

Higher Rate SDLT Case: Property Purchase Ineligible for SDLT Relief Due to Multiple Purposes, Including Training Business Enhancement

(Case Law>Higher and Super Rate Cases)

Consultus Care & Nursing Ltd v Revenue & Customs (STAMP DUTY LAND TAX – application of higher rate to certain high value residential transactions) [2019] UKFTT 437 (TC) (04 July 2019). Cite as: [2019] UKFTT 437 (TC).

URL: https://www.bailii.org/uk/cases/UKFTT/TC/2019/TC07251.html 

➤ Buying a property for multiple business purposes, including training enhancement, does not qualify for Stamp Duty Land Tax relief due to the lack of exclusivity in its intended use.

Introduction
This case involves Consultus Care & Nursing Limited (CCN) appealing against a closure notice which denied them relief from a higher rate of Stamp Duty Land Tax (SDLT) on a property purchase, resulting in an additional £102,750 of SDLT payable.

Example scenario where this case law principle is relevant
In real life, this principle could apply to a company purchasing property with the intent to use it for business purposes, such as providing temporary accommodation for employees. If the company seeks relief from higher SDLT rates, it must prove the property was acquired exclusively for qualifying business activities.

The legal principles agreed upon
The tribunal found that the property was not acquired exclusively for the purposes of a qualifying property rental business, as required for SDLT relief. It was determined that CCN had multiple purposes for the purchase, including enhancing its training business, which did not meet the “exclusively” requirement for relief under the SDLT regulations.

General summary
The case centred on CCN’s purchase of a property intended to house carers attending training courses. CCN claimed SDLT relief, arguing the property was bought exclusively for rental to carers, qualifying as a property rental business. However, evidence suggested the purchase also aimed to support CCN’s training operations, disqualifying it from the relief due to the lack of exclusivity in purpose. 

Furthermore, the tribunal considered whether CCN’s operation of the property constituted a trade or a rental business. Despite similarities to cases where property letting was not deemed a trade, the tribunal concluded that CCN’s overall activities, including the property’s use, formed part of a trade rather than a separate rental business. Consequently, CCN did not qualify for the SDLT relief, and the appeal was dismissed. This decision underscores the strict interpretation of “exclusively” in tax relief claims and the distinction between property rental businesses and trading activities within the context of SDLT regulations.

WRA Higher Rate SDLT Case: Legal Tribunal Upholds Higher LTT Rate; Penalty for Inaccurate Reporting Upheld, Recalculated

(Case Law>Higher and Super Rate Cases)

CARL JAMES v The Welsh Revenue Authority (Land Transaction Tax – whether higher rate applicable – yes) [2022] UKFTT 271 (TC) (11 August 2022). Cite as: [2022] UKFTT 271 (TC).

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08563.html 

➤ Buying a property to merge with your main residence does not exempt you from paying a higher Land Transaction Tax rate, and inaccurate reporting can result in a penalty, even if recalculated for honesty.

Introduction
This case involves an appeal against a higher rate of Land Transaction Tax (LTT) and a penalty assessment.

Example scenario where this case law principle is relevant
A couple, owning a property, purchases a neighbouring property to merge it with their main residence. They dispute the higher rate LTT applicability, believing their actions qualify for exemptions.

The legal principles agreed upon
The tribunal confirmed the higher rate of LTT was applicable, as exemptions for replacing a main residence or merging with an existing main residence were not met. The penalty for inaccurately reporting LTT was also upheld, though recalculated for being an unprompted disclosure.

General summary
Carl James and the Welsh Revenue Authority disputed over the higher rate applicability of LTT for a property purchase intended to merge with James’ main residence. The tribunal found that the purchase did not qualify for exemptions that would exempt it from the higher rate. 

The main issues revolved around whether the property was a separate dwelling at the time of purchase and if the actions taken by James qualified for the main residence replacement exemption. 

Despite James’ belief that merging the properties exempted him from the higher rate, the tribunal upheld the higher rate’s applicability. Additionally, a penalty was assessed for inaccurately reporting the LTT due, which was recalculated to reflect an unprompted disclosure with full reduction for disclosure. The case underscores the importance of understanding tax liabilities and exemptions in property transactions.

WRA Higher Rate Case: Joint Property Purchase with Family Member Could Trigger Higher LTT Tax Rates

(Case Law>Higher and Super Rate Cases)

Hayes v The Welsh Revenue Authority (Land Transaction Tax – higher residential rates) [2023] UKFTT 280 (TC) (08 March 2023). Cite as: [2023] UKFTT 280 (TC). 

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08754.html 

➤ Helping a family member buy a property can lead to higher Land Transaction Tax rates if you already own a home, regardless of who will live in the new property.

Introduction
The case involves an appeal against higher residential rates of Land Transaction Tax on a property purchase in Wales.

Example scenario where this case law principle is relevant
This principle applies when an individual, already owning a property, assists a family member in purchasing another property, resulting in both being listed as buyers. Despite the intention for only the family member to reside in the new property, the involvement of an existing property owner can trigger higher tax rates under the Land Transaction Tax regulations.

The legal principles agreed upon
The tribunal confirmed that transactions involving the purchase of additional residential properties by individuals who already own another dwelling are subject to higher rates of Land Transaction Tax. This applies even if the purchase is intended to assist a family member and the buyer does not benefit from or reside in the new property.

General summary
The case centred on Mrs. Lorraine Hayes and her daughter’s purchase of a property in Wales, intended solely for the daughter’s use. Despite Mrs. Hayes not living in the new property and only participating in the purchase to satisfy mortgage requirements, the tribunal ruled that the transaction was subject to higher residential rates of Land Transaction Tax. 

The law in Wales clearly stipulates that if an individual involved in a property transaction already owns a property, the purchase is liable for higher tax rates, regardless of the individual’s intentions or living arrangements. 

The tribunal’s decision emphasised the strict application of tax laws, underscoring that personal circumstances and intentions behind property purchases do not exempt buyers from higher tax rates when legal criteria are met. Mrs. Hayes’s appeal was dismissed, reinforcing the legal framework governing land transaction taxes in Wales and the conditions under which higher rates apply.