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A picture of a London suburb| AccountingWEB| ATED and SDLT: Taxpayer fails exclusively test

ATED and SDLT: Taxpayer fails exclusively test


A property acquired by a company from a director was not exempt from ATED relief after HMRC argued that the acquisition wasn’t solely for property development.

19th Apr 2024
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In a recent first tier tribunal, a taxpayer was found to have failed the ‘exclusively’ test for the purposes of property development trade relief. Therefore, it did not qualify for the annual tax on enveloped dwellings (ATED) relief, nor was it excluded from the stamp duty land tax (SDLT) charge at 15%.

The facts

Investment and Securities Limited (IST) was indirectly owned by Kimberley Voice (KV) and her two children. In 2014, IST acquired an option for £4,650,000 to purchase KV’s London home, exercisable after five years, for £9.3m, less the option payment. 

IST had the property informally valued and concluded the project was commercially viable given the expected increase in London property values, with or without any redevelopment, but that it could not afford to purchase the property outright. However, IST also wanted the benefit of being able to acquire the property later, without having to compete against other developers.

KV was in need of immediate funds and if she was not paid a high option price upfront, KV would have sold the property on the open market.

All parties understood KV would continue to live in the property whilst under option, but that eventual purchase would be with vacant possession.

SDLT was paid on acquiring the option at 7% but following the submission of the company’s SDLT return, HMRC wrote to IST asking why SDLT had not been paid at 15%, the amount applicable to high-value residences not excluded by the reliefs at Paragraph 5 Sch 4 FA 2003, and why ATED returns had not been submitted.

The London property market declined at a time of increasing development costs and the property was valued in March 2019 at only £7.5m in its undeveloped state. Despite the decreased in valuation, IST acquired the property in June 2019, a few days after KV had moved out, and eventually sold it at a loss.

The arguments

IST originally argued the option was not an interest for these purposes and even if it was, no further tax was due as the property was acquired for its property development trade, meaning relief was due from both the higher rate of SDLT and ATED. 

Whilst it accepted KV, a non-qualifying individual, had continued to live in the property during the option period, she had been required to leave on its purchase by IST. As she had only occupied the property as freeholder, it could not be said that IST had permitted her to live there, so relief should not be precluded on these grounds.

HMRC argued that whilst it accepted IST carried on a property development trade, it did not agree that the property had been exclusively acquired for these purposes, a requirement for both the SDLT and ATED reliefs. The Revenue added that other purposes existed, such as providing immediate funds to KV, buying time for IST to finance the development, preventing a third party from acquiring the property and providing KV with somewhere to live until exercise.

HMRC also argued it was not just for IST to have permitted occupation by a non-qualifying individual but that any person could have intended this, all of which supported HMRC’s SDLT assessments for additional tax of £372,000 plus interest of £43,512.14, and ATED charges of £35,900, £54,950 and £17,766 for the years ended 31 March 2015 and 2018 and period 1 April 2019 to 2 January 2020 respectively, plus interest. 

The ruling

The FTT agreed with HMRC in that the property had not been exclusively acquired for the company’s property development trade due to the unusually high option price paid. It did not consider this to be a commercial approach for a property development company, and had to be driven at least in part by the immediate need of funds by KV, as it was unlikely that similar terms would have been reached with an unconnected party. 

Further, whilst it would be usual for a developer to delay transactions to seek finance, taking an option price into account of the final amount paid was unusual and given the high option price paid, could not be separated from KV’s need for immediate funds.

The company’s claim for relief from the higher SDLT charge and ATED therefore failed and the FTT did not need to determine whether KV had been permitted to occupy the property, but did go on to agree that in their view, the strong implication was that the permission had to be given by the purchaser and as KV occupied by virtue of her freehold interest only, there had not been any occupation by a non-qualifying individual.


It is not known why ATED assessments were not issued for 2016, 2017 or 2019 but it is clear from this and recent ATED cases that HMRC is continuing its challenge on corporate property owners. 

Whilst IST may have thought setting out the reasons for structuring the deal as it had helped in terms of supporting it carrying on a commercial property development trade, the link to the ultimate owner’s need for immediate funds proved to be its downfall, at least before the FTT.

It remains to be seen whether the company will appeal.

Replies (1)

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By FactChecker
19th Apr 2024 19:50

No doubt exposing why I was never attracted to being a tax adviser (or indeed what was almost the family trade of lawyer), but I'm always struck by the feeling that the first step in availing yourself of any tax relief ... should be to ascertain the criteria necessary for eligibility and then to ensure that those apply prior to starting on the project.

In this case it's not clear why the taxpayer (or her advisers) thought that the ‘exclusively’ test was going to be met by the series of interlocking objectives? Although more obvious why the FTT didn't.

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