The changes in recent years to the Stamp Duty Land Tax (SDLT) rules have added a lot of complexity and a recent case highlights the difficulty taxpayers face in calculating the amount of tax due and determining what reliefs are available.
In October 2014, Sequence Care Group Holdings Ltd obtained planning permission to convert a 5-bedroomed house into a care home for young adults with learning difficulties, later acquiring the property in February 2015.
Ordinarily, when a company acquires a residential property for more than £500,000, it is subject to an SDLT rate of 15 per cent - this high rate representing one of a number of measures introduced to deter high-value homes being acquired by companies.
Relief from the 15 per cent rate is available to property developers and investors and at the time, was also extended to properties used in the course of the company’s trade when the company’s customers could stay in or enjoy the ‘dwelling’ for more than 28 days a year.
On the basis that the property was to be converted to a care home and would be occupied by its residents for over 28 days a year, the taxpayer didn’t apply the 15 per cent rate and HMRC challenged this.
In its correspondence with the taxpayer, HMRC outlined that the ‘28 day’ SDLT relief was only available to stately homes and wedding venues. In reaching its judgment, the court commented this analysis was ‘clearly wrong’. HMRC did not try to argue the same point during the case itself which perhaps illustrates they suffered some confusion in how to apply the rules.
Nevertheless, the court confirmed that a care home did not meet the SDLT definition of a ‘dwelling’ in this case and the relief was denied (even though the property was clearly a dwelling at the time it was purchased). Unfortunately for the taxpayer, the rules changed in 2016 and the property would likely have qualified for the relief if purchased after that time.
Whilst the court’s decision was pretty straightforward in the end, it highlights how overly complex the SDLT rules and reliefs have become with taxpayers and HMRC themselves misinterpreting them.
With record SDLT revenues in 2017, it seems likely that many taxpayers are overpaying SDLT as a result. Not helped by the fact that the logic of the rules at times, such as giving relief in this case to wedding venues but not care homes, doesn’t seem to stack up.