VAT Director Rayner Essex
Share this content

SDLT: Careless drafting cost £118,750

The exemption from 15% SDLT was broken as a shareholder of the purchasing company had the right to occupy the property for up to five days while it was not otherwise let.

22nd Jan 2021
VAT Director Rayner Essex
Share this content
Stamp duty land tax

This case (TC07881) hinged on whether the 15% SDLT surcharge is applicable due to personal use of the property. It highlights the need to be careful when drafting legal documents.

SDLT exemption

When a corporate entity purchases a dwelling for over £500,000 a 15% SDLT surcharge applies to the whole value unless exemptions apply. This charge is designed to deter dwellings being held within a corporate wrapper.

There are a number of exemptions from this surcharge, including where the dwelling is held for rental income purposes, such as buy-to-lets and holiday homes. The exemption is withdrawn if the property is occupied by the owner or connected person within three years of acquisition.


Waterside Escapes Ltd let holiday properties. The entity was 50% owned by Mrs Hume-Kendall (HK), the remaining 50% held by an unconnected trust. Within the shareholder agreement, there was provision for the shareholders to occupy the property for no more than five days per year, “provided that the property would otherwise be vacant”. 

HK explained that she personally managed the property, supervising the refurbishment works, cleaning the property between customer visits. HK admitted that she occasionally stayed at the property when she was performing maintenance or redecoration and was easier to stay overnight than return to her home (which was a 25 minute drive away).

HK asserted that her occupation of the property was for business purposes, not personal purposes.

Occupation for business purposes?

The tribunal considered the concept of representative occupation - occupying for business purposes. The FTT considered that this exemption only applies if the relevant interest in the property is acquired “exclusively” for a specified purpose (such as a property rental business).

The tribunal view was that the shareholder occupation clause was not drafted to be construed as permitting “representative occupation” but for personal occupation. Therefore, although occupation for business purposes could have meant the exemption applied, as there was a legal shareholder entitlement for personal use, the intention was clear, whether that intention was fulfilled or not.

Bad drafting

Mrs HK had not fully appreciated the effect of the shareholder agreement clause and when the issue was identified, she had the clause removed. Although HK had no intention to use the property for personal purposes, the tribunal could not disregard the shareholder agreement which granted a maximum of five days for occupation or use. 

HK had left the drafting of the agreement to the solicitors, who may not have understood the SDLT implication of such a clause. It was perhaps drafted to ensure personal use was restricted to prevent excessive use of the property by the shareholders and to maximise rental revenue.

HK stated that the shareholder clause was restrictive in nature, designed to prevent shareholders occupying the property whereas if the agreement had been silent on use, the potential for shareholders to use the property became unlimited. 

There is clearly a strong and spirited argument here, but as with most indirect taxes, it is difficult to retrospectively change the past. The exemption from the SDLT surcharge is based on no personal use, a shareholder agreement granting personal use breaks the conditions of that exemption. 


Solicitors are not generally also tax advisers. When entering into property transactions of a significant value it is important to obtain advice that covers both the legal and the financial aspects of the deal, and the teams of advisers need to work collaboratively.

Replies (2)

Please login or register to join the discussion.

By Justin Bryant
22nd Jan 2021 14:11

I suspect that the share certificate and members’ register may have been back-dated (to the allotment date) per my comments in the link below (albeit re share transfers) and possibly that argument could have helped if the taxpayer had confirmed that that happened.

Notwithstanding s 558 CA 2006, if the physical share allotment entries in the members’ register are made the day after the allotment date then arguably it is not allowed to back-date the members’ register to the prior allotment date and it must still be dated with its actual amendment date. Assuming you can’t back-date the members’ register for share transfers, I can’t see why there should be a back-dating exception for share allotments and s 558 says nothing about the date the members’ register should be dated if it’s amended subsequent to the share allotment date.

Apart from that, the taxpayer was rather let down by her lawyers here as stated above and her counsel did a pretty good damage limitation job re SLP etc.

Thanks (1)
Replying to Justin Bryant:
Jason Croke
By Jason Croke
28th Jan 2021 16:34

Appreciate the article doesn't delve too deeply into the share holding aspects of the case, I am somewhat limited to numbers of words so focused on the main theme of having a personal use clause on a property that cannot be used for personal use.

The share issue, you are right, there is certainly room for discussion there and the Counsel had little to work with but put up a spirited fight.

Thanks (0)