The First-tier Tribunal has dismissed two joined appeals against a common decision that the total consideration paid for the purchase of a leasehold property subject to an earlier reservation fee should be charged to stamp duty land tax at the residential rate (Landmaster Investment Ltd and Al Zoebi v HMRC [2023] UKFTT 736 (TC)).
The common facts to both cases were that the appellants paid a reservation fee before proceeding to acquire a 999-year lease on an apartment. SDLT was initially paid at the residential rate but then an amendment was submitted to the return arguing that that the transaction was instead chargeable at the non-residential/mixed rate, resulting in a lower amount of tax. The arguments for this were that:
- the reservation agreement was an “option” and/or “right of pre-emption” within the meaning of s. 46(1) of the Finance Act 2003;
- the acquisition of the option and/or right of pre-emption was a separate land transaction chargeable at the non-residential/mixed rate;
- the acquisition of the option and/or right of pre-emption, and the acquisition of the 999-year lease, were linked transactions; and
- both of the linked transactions were therefore chargeable at the non-residential/mixed rate.
HMRC rejected these arguments and issued closure notices assessing the transactions at residential rates. The taxpayers appealed.
Following detailed analysis, the FTT decided that the reservation agreement did not grant an option nor did it grant a right of pre-emption within the meaning of FA 2003, s. 46. This meant that:
“The prospective purchaser’s rights under the reservation agreement were not a chargeable interest within the meaning of s 48 FA 2003, and entry into the reservation agreement was therefore not a land transaction within the meaning of s 43(1) FA 2003. The Tribunal finds that the reservation agreement itself imposed no legal obligation on the vendor to sell the apartment to the prospective purchaser. It merely imposed a personal contractual obligation on the vendor not to negotiate with third parties during the reservation period. The reservation agreement did not create an estate, interest, right or power in or over land, or give rise to an obligation, restriction or condition affecting the value of any such estate, interest, right or power. The prospective purchaser’s remedy for any breach of a reservation agreement by the vendor would have been a personal action against the vendor only.
If follows that entry into the reservation agreement was not a land transaction and therefore could not be a linked transaction with the acquisition of the 999-year lease of the apartment, within the meaning of s 108 FA 2003.”
This effectively ended the matter, but the FTT went on to consider if it had been wrong in its analysis and there were two separate linked transactions should the non-residential/mixed rate then apply? It concluded that the two separate transactions would both be residential so the residential rate would still apply to the combined consideration.
The FTT had invited further written submissions from the appellants and HMRC. Both responded but the appellants had also applied for an application for permission to make further written submissions “on the issue of the status of the purchasers’ rights in connection with property that has not yet been constructed”. This was refused, the FTT concluding:
“The Tribunal is not satisfied that the HMRC post-hearing submission has raised any new issue to which the Appellants have not had an adequate opportunity to respond.”
https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08919.html
Related content from Claritax Books
Stamp Duty Land Tax is a well-written, user-friendly guide to the complexities of SDLT, written for accountants, solicitors and other tax professionals, with plenty of worked examples. Topics covered include basic principles, leasehold transactions, partnerships, trusts, reliefs, anti-avoidance legislation and recent tribunal decisions. Full reference is made throughout to relevant legislation, case law and guidance from HMRC.
