The case of HMRC v Daniel Ridgway shows that stamp duty land tax “is so complicated even the courts can’t agree”, according to Michaela Seager, private client associate director at RSM.
In HMRC v Daniel Ridgway, the Upper Tribunal 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 be subject to a lower rate of SDLT.
Two weeks before completion, the vendors granted a commercial lease of the Old Summer House for six months to a photography business which 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 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.
This was appealed by Ridgway to the First-Tier Tribunal who denied the mixed-use claim as they found that the SDLT anti-avoidance provisions required the lease to be disregarded when calculating the amount of SDLT due.
Shortly after the decision was made by the tribunal, HMRC appealed the judgement and the UT found the FTT was incorrect.
As the UT decision now stands, this means that HMRC has “successfully argued” that two dwellings were acquired.
However, it has still denied the claim for multiple dwellings relief due to the time limit for amending the return 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,” Seager said.
Seager said this case has highlighted how legislation can be interpreted by different people and how important it is for taxpayers to understand the key areas of risk when submitting a SDLT return with a claim for relief.
With next week’s Spring Budget set to announce even more SDLT changes around mixed-use transactions and multiple dwellings relief , this is “certainly” an area to keep an eye on, she said.
tom.dunstan@ft.com
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