SDLT is so complicated even the courts can’t agree!

In the recent case of HMRC v Daniel Ridgway, the Upper Tribunal (UT) considered a property transaction involving two separate registered titles; a semi-detached house and gardens and another property called the Old Summer House. Both properties had separate entrances and advice was taken by a solicitor that if Old Summer House was being used commercially at the date of completion, the transaction could be deemed a 'mixed-use’ transaction and therefore subject to a lower rate of stamp duty land tax (SDLT).

Two weeks before completion, the vendors granted a commercial lease of the Old Summer House for six months to a photography business. The lease included a clause that the property should not be used for residential purposes.

In light of the advice taken, a SDLT return was submitted to claim the lower rates of SDLT on the basis that the transaction was deemed to be ‘mixed-use’. However, as part of HMRC’s attack on incorrect SDLT reliefs being claimed, HMRC opened an enquiry into the return and relief was denied.

Mr Ridgway appealed to the First-tier Tribunal (FTT) who denied the mixed-use claim as they found that whilst the existence of the commercial lease meant the Old Summer House was not suitable for use as a dwelling, the SDLT anti-avoidance provisions required the lease to be disregarded when calculating the amount of SDLT due. However, on a positive note, the FTT concluded that multiple dwellings relief (MDR) would apply even though the time has passed to amend his SDLT return to claim the relief.

Shortly after the decision was made by the FTT, HMRC appealed the judgment and the UT found that the FTT was incorrect in concluding that the Old Summer House was not suitable for use as a dwelling, that the anti-avoidance provisions would apply, and that MDR would apply – contradicting the previous FTT decision.

As the UT decision now stands, this means that HMRC has successfully argued that two dwellings were acquired. But they have still denied the claim for MDR due to the time limit for amending the return to make the claim having passed, partly because it took so long for HMRC to issue a closure notice and hear the decision at Tribunal. The outcome has really shown that HMRC can have its cake and eat it!

Overall, this case has highlighted how legislation can be interpreted differently by different people and how important it is for taxpayers understand the key areas of risk when submitting a SDLT return with a claim for relief. With next week’s Budget potentially set to announce even more SDLT changes around mixed-use transactions and MDR, this is certainly an area to keep an eye on.