Assessing property for the purposes of the residential SDLT rate  

Restrictive covenants

The recent case of Ridgway v HMRC, has cast doubt on the previous approach as to what factors determine the suitability of a property for use as a dwelling, for the purposes of Stamp Duty Land Tax (“SDLT”) rate.

Previously, the First-tier Tribunal held in the Brandbros Limited v HMRC case, that the grant of a commercial lease, over a garage, to the rear of a property, on the day of completion of the purchase of the residential property, would not be sufficient to allow the non-residential SDLT rate to be applied.

The circumstances of the Brandbros case were that the taxpayer purchased the property, and then let the garage by way of the commercial lease on the day of completion of the purchase. An SDLT Return was submitted with SDLT assessed using the residential rate.

The taxpayer subsequently attempted to amend the Return, and claim a refund on the basis that the property was a mixed-use property for SDLT purposes. The matter ultimately proceeded to a Tribunal, and it was held that as the grant of the lease was part of the same transactional scheme as the purchase, it was to be disregarded for the purposes of assessing the SDLT due.

The Ridgway case arose in the context of multiple dwellings relief and concerned two properties being purchased by the taxpayer. One property was subject to a lease restricting use as a residential dwelling for nine months.

The lease had been entered into by the seller two weeks before completion of the purchase, but the taxpayer had been involved in finding the tenant. Here the Tribunal considered several factors when assessing if the residential rate applied and despite the property being fit for use as a residential dwelling, it considered that the restriction was enough for the non-residential rate to apply, and so was able to distinguish the facts of the case from the decision in the Brandbros case.

The Tribunal not only rejected HMRC’s case but in fact lowered the SDLT that the taxpayer had in fact declared as being due in their SDLT Return. Therefore, the Ridgway case shows that what constitutes a residential property for SDLT purposes will be determined by a range of factors, including but not limited to the condition of the property on the effective date, the legal restrictions placed on the property, the use of the property and the overall scheme (where more than one transaction is involved).

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