Tax Manager Hillier Hopkins
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Stamp duty land tax
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SDLT relief not due on planning permission alone

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Two appeals sought to determine whether planning permission was capable of satisfying the condition for dwellings being “in the process of construction” in order for multiple dwellings relief (MDR) to apply.

3rd Sep 2021
Tax Manager Hillier Hopkins
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The two appeals: Ladson Preston Ltd and AKA Developments Greenview Ltd were heard together at the FTT as case TC08197.

Each appeal had a lead appellant with a group of appeals standing behind it, as the argument of using planning permission to qualify for the relief had been discussed in the industry for some time, and as such they were treated as test cases.

In both cases, planning permission had been granted prior to the effective date of the transaction (EDT) for the construction of multiple dwellings but no dwellings yet stood. After the EDT, each taxpayer had constructed the dwellings in accordance with the granted planning permission.

The two cases considered situations where:

  • No dwellings were built at the EDT; and
  • Some ‘construction’ works had begun before the EDT.

Ladson Preston

The purchase consisted of bare land with the benefit of planning permission for 218 flats and commercial space on the ground floor. The point of contention was that planning permission is the start of the construction process, therefore, the flats were in the process of being constructed at the EDT.

Tribunal’s findings

For MDR to apply the main subject matter must consist of the transfer of an interest in more than one dwelling.

Planning permission does not have a property title and it is not a right held by one person. Hence, it is not something that a person can own, or that can be sold or transferred by one person to another. As such planning permission cannot be acquired from the seller by the purchaser as part of the subject matter of a land transaction on which SDLT is payable.

If planning permission triggered MDR it could result in abuse as purchasers could submit planning permission for a potential site, benefit from the application of the relief and subsequently change their intention and not erect the dwellings.

Furthermore, planning permission is a non-physical activity, as such, other non-physical activities could trigger relief. For example; architect’s plans, contracts which have been concluded with suppliers or sub-contractors for the building project, or secured finance for a project.

The FTT concluded that as planning permission is not something that can be transferred. Other non-physical activities relate to a buyer’s own plans and arrangements and are similarly not something that is acquired by a purchaser.  

The main subject matter of the transaction did not include an interest in more than one dwelling so Ladson Preston was denied relief.

AKA Developments Greenview

The purchase consisted of commercial buildings which were to be demolished to ground level and 9 dwellings were to be constructed. This case relies on the principals in the Ladson case and the ‘construction’ works performed before and on the day of EDT.

The works consisted of bore holes dug prior to the EDT and works were performed on the day to remove the existing buildings. The argument was that the dwellings were under construction on the EDT, since the EDT is the day of completion, not the time of completion.

Tribunal’s findings

Bore holes are similar to the non-physical activities discussed in the Ladson case as title to them cannot be transferred between parties. As such, the bore holes cannot be characterised as the main subject matter of the transaction.

Works undertaken after the transaction is completed cannot have formed part of the subject matter of the transaction, even if performed on the very day of the EDT.

The main subject matter of the transaction did not include an interest in more than one dwelling so AKA Developments Greenview was denied relief.

Points to take away

If a dwelling is in the process of being constructed for the SDLT relief to apply, the main subject matter of the transaction must be an interest in more than one dwelling. This means works must be substantially performed before an unbuilt dwelling comes into existence for the relief.

Replies (5)

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By Justin Bryant
03rd Sep 2021 16:03

"Bore holes are similar to the non-physical activities discussed in the Ladson case as title to them cannot be transferred between parties. As such, the bore holes cannot be characterised as the main subject matter of the transaction."

That part of the decision is of course total nonsense and yet another example of the FTT not understating very basic SDLT (and land law) stuff. The main subject matter of the transaction is simply the relevant freehold or leasehold etc. interest acquired per s43(6) FA 2003 and nothing more and nothing less and in any event of course the bore holes were acquired as a matter of fact with that interest, not being chattels.

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdlt...

The overall decision is probably nevertheless right due to the absence of golden brick.

Thanks (1)
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By Paul Crowley
03rd Sep 2021 23:00

Sanity shown by FTT
Avoision shown as such.
Certain that my preferred place to live is not a bore hole.

Thanks (0)
Replying to Paul Crowley:
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By Justin Bryant
06th Sep 2021 10:37

Assuming GAAR is not in point, that's (supposed to be*) irrelevant per the following from the case below:

"The question is simply whether upon its true construction, the statute applies to the transaction. Tax avoidance schemes are perhaps the best example. They either work (Inland Revenue Commissioners v. Duke of Westminster [1936] AC 1) or they do not (Furniss v. Dawson [1984] A.C. 484.) If they do not work, the reason, as my noble and learned friend Lord Steyn pointed out in Inland Revenue Commissioners v. McGuckian [1997] 1 WLR 991, 1000, is simply that upon the true construction of the statute, the transaction which was designed to avoid the charge to tax actually comes within it. It is not that the statute has a penumbral spirit which strikes down devices or stratagems designed to avoid its terms or exploit its loopholes. There is no need for such spooky jurisprudence."

https://www.bailii.org/uk/cases/UKHL/1997/51.html

As endorsed in paras 37 & 38 with relatively minor (fairly self-evident) qualification re "true commercial reality" and tax avoidance motive here (arguably irrelevant to the above case): http://taxandchancery_ut.decisions.tribunals.gov.uk/Documents/decisions/...

*In practice bad (biased) judges overlook that spooky jurisprudence point of course and effectively apply such jurisprudence to avoidance schemes.

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By Justin Bryant
06th Sep 2021 13:26

It would appear my above comments re FTT's general lack of knowledge of SDLT issues are part of a wider problem. See: https://www.lawgazette.co.uk/news/overstretched-and-under-resourced-tax-...

"‘Many survey respondents and interviewees suggested that some judges lacked either the technical knowledge or technical ability to hear the cases they were allocated,’ the research group said."

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paddle steamer
By DJKL
07th Sep 2021 14:57

Interesting that they require substantial work to have been done to change the status of the property yet with planning permission one could , certainly before "commencement of development notices" were in use in Scotland, by accident change a property's planning status.

We had a property that was a licensed premise, the market being slack to lease same we applied for PP to create offices within the structure, we got the PP.

Whilst this was going on we did find a tenant willing to take the premises as licensed premises. Various works were then undertaken ( what we thought was renovation of a pub) however Edinburgh Planning argued successfully that given a PP for offices existed, and work had started , those works had changed the status of the property from a pub to offices and if we wanted it to be a pub we needed to now apply for change of use from offices (not that physically any offices yet existed) to licensed premises. We also could not with EDC vary the old licence, we had to apply for a brand new licence (luckily prior to the changes in the 2005 Act which now require one to demonstrate local need for any additional licensed premises)

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