Dwell on “Dwelling”

This article examines two recent First tier tribunals cases in which the higher rate of SDLT (‘the flat rate of SDLT at 15% became payable on high value residential acquisitions.

Case 1- Sequence Care Group Holdings Limited v The Commissioners for Her Majesty’s Revenue and Customs.

Case 2- Goode Cuisine Company Limited v The Commissioners for Her Majesty’s Revenue and Customs

The background to both of these cases involved in the purchase of an existing dwelling of over £500,000 by a company, which were then to use for the purposes of their respective trades.  In the case of Sequence Care Group, the company obtained planning permission for the construction of a two storey extension and changed the use of the purchased property from a residential to a 7 bed care home.  In Goode Cuisine, the property was soon after the purchase converted to 7 commercial letting rooms and used in the company’s bed and breakfast trade.

On acquisition, SDLT returns were completed and submitted to HMRC with a claim for relief from the high threshold interest.  Subsequently, HMRC opened an enquiry into both companies’ SDLT returns and stated that higher rate of 15% of SDLT should be applied.

Higher Threshold Interest under Sch 4A FA 2003

The 15% flat SDLT rate is chargeable, when-

  • Purchaser is a company
  • Acquisition is of an interest in a single dwelling
  • Consideration is for more than £500,000

It was agreed between all parties that the properties acquired were existing dwellings and would therefore prima facie fall within the scope of the higher rate legislation.  However, there is an exemption under FA 2003 Sch 4A for trades making a dwelling available to the public.  Under this exemption, the higher rate does not apply when the purchase is made with the intention that the property will used as a source of income in the course of the qualifying trade and reasonable commercial plans have been formulated to carry out that intention.  In addition, the company must also involve the purchased property in its normal course, offering the public an opportunity to make use of, stay in or otherwise enjoy the dwelling as customers of the trade on at least 28 days in any calendar.

When both conditions are met, relief from the 15% SDLT tax rate is available and SDLT based on the normal residential rates is payable.

In the two cases- Goode Cuisine and Sequence Care Group, it was accepted that the companies carried a trade, which were carried out on a commercial basis, with a view to profit.    However, for the properties to remain exempt from the higher rate threshold, the customers of the trade needed to enjoy the “dwelling”.  In both instances, considerable conversion and extension had been carried out to the dwelling after acquisition and in accordance with s116(3) FA 2003 following the conversion works, the properties were no longer considered to be used as a dwelling for the purposes of SDLT as it was either used as “a hotel or inn or similar establishment” or “used as home providing residential accommodation for persons in need of personal care by reason of old age”.  Accordingly, the exemption that was not available.

It is noted that in both cases, following the changes to SDLT legislation from April 2016, the properties would have qualified for exemption under para 5.  However, these transactions took place prior to these amendments and therefore could not use this exemption.  Both of these cases act as a timely reminder of the importance of understanding exactly the form of the property when it is acquired, how the properties are to be used by business and how these matters can fundamentally impact the SDLT arising.  Where the higher rate applies, it can be punitive and HMRC are very active in looking at whether the exact terms of the relief are being met.

For further details regarding property taxes please contact Caroline Fleet or Zahra Bharmal on 0845 4900 509.