Taxation – Stamp duty land tax – Multiple dwellings relief – Appellants appealing against decision of First-tier Tribunal refusing multiple dwellings relief when determining stamp duty land tax due on acquisitions of land they had effected – Whether buildings in process of being constructed for use as dwellings – Whether activities undertaken after time of completion of transaction relevant to determining chargeable interest acquired – Appeal dismissed
Two stamp duty land tax (SDLT) appeals were heard together. Both concerned the availability of multiple dwellings relief (MDR) under schedule 6B to the Finance Act 2003. In both appeals, the transaction upon which SDLT was payable was the acquisition by the appellant of the freehold title to certain land.
In both cases, planning permission had been granted prior to the effective date of transaction for the construction of multiple dwellings on the land, but no dwellings yet stood on the property on the effective date of transaction. After that date, each appellant then constructed multiple dwellings on the property in accordance with the planning permission that had previously been granted.
In the case of the first appellant, on the effective date of transaction the property was bare land. In the case of the second appellant, the property was, on the effective date of transaction, land on which various structures and buildings stood. Prior to the effective date of transaction, the second appellant had dug several bore holes on the site. On the effective date, but after the transaction for the acquisition of the property had been completed, the second appellant commenced work for the removal of the existing buildings.
The First-tier Tribunal (FTT) subsequently held that neither appellant was entitled to multiple dwellings relief (MDR) when determining the amount of SDLT due on their acquisitions of land.
The appellants appealed contending, amongst other things, that the FTT erred in law: (i) in its analysis of the combined effect of paragraphs 7(2)(b) and 2(2) of schedule 6B; and (ii) in its conclusion as to the relevance and significance of planning permission.
Held: The appeal was dismissed.
(1) SDLT was normally charged as a percentage of the “chargeable consideration” given for the chargeable interest acquired or, if multiple interests were acquired, the aggregate chargeable consideration given for all such interests. However, if MDR was validly claimed, an alternative method of computation was used which involved dividing the total consideration payable for the transaction by the number of dwellings on the property. The amount of SDLT that would be payable on the quotient was then multiplied by the number of dwellings. Since lower value acquisitions attracted SDLT at lower rates, the process usually resulted in a lower effective rate of tax overall, but the effective rate of tax could not fall below 1%.
The question whether MDR was available involved an analysis of the “chargeable interest acquired” and whether that chargeable interest consisted of an interest in at least two dwellings and other property. Paragraph 7(2)(b) explained what was to count as a “dwelling” for those purposes but was not the provision that itself conferred MDR. The relevant question on which availability of MDR depended involved an examination of the nature of the chargeable interest that was acquired.
(2) Paragraph 7(2)(b) provided that: “A buildin … counts as a dwelling if… it is in the process of being constructed… [for use as a single dwelling] “. That was a “composite phrase”. Significantly it included the concept of a “building”, whether that building was “in the process of being constructed” and the use to which the building would be put. Each aspect of that composite phrase informed the proper interpretation of its totality.
It was part of a wider definition of what was to count as a “dwelling” that was used to answer the question posed by paragraph 2(2)(b) which involved a consideration of the nature of the chargeable interest acquired. The question was whether that chargeable interest consisted of an interest in at least two dwellings and other property.
When paragraph 7(2)(b) was considered in its proper context, there was a clear indication that it was referring to some physical manifestation of a dwelling on the relevant land. Without that, there might well be an intention to construct a future building, but no building that was in the process of being constructed.
Further, a physical manifestation of construction works could not of itself be enough to satisfy the requirements of paragraph 7(2)(b). However, the final use of the building would, in most cases, be capable of being demonstrated by reference to the planning permission granted and, where relevant, architect’s plans or similar.
(3) Paragraph 7(5) of schedule 6B was concerned with “off-plan” purchases. Although it dealt with a different situation, its drafting was instructive. Where construction, “has not begun” (paragraph 7(5)(c)) then the building could only be described as a “building that is to be constructed” (paragraph 7(5)(b)). That supported the conclusion that parliament intended a distinction between a building that “is to be constructed” and one that was “in the process of being constructed” with a physical manifestation of the construction work being necessary for the latter.
(4) Paragraph 7(2)(b) did not simply require an examination of whether a particular activity could, at a high level of generality, be described as part of a “process of construction”. Rather, the question in essence was whether there was a building in the process of being constructed for use as a dwelling on the chargeable interest acquired. Focussing on the actual statutory words, it was clear that the physical manifestation required by paragraph 7(2)(b) had to be of the very building that was in the process of construction for use as a dwelling, rather than simply of something that could be described, at a high level of abstraction, as being part of a process of construction.
(5) Paragraph 7(2)(b) did not focus on how people might be expected to describe proposed construction works. Rather, the question was whether there was a building, in the process of being constructed for use as a dwelling, physically present on the land.
The grant of planning permission for the construction of dwellings on bare land was not in itself enough to satisfy the requirements of paragraph 7(2)(b). It followed that the FTT had not erred in concluding that the grant of planning permission to the appellants was insufficient to meet the requirements of paragraph 7(2)(b).
Patrick Cannon (instructed by Goldstone Tax Ltd) appeared for the appellants; Ben Elliott (instructed by the General Counsel and Solicitor for His Majesty’s Revenue & Customs) appeared for the respondents.
Eileen O’Grady, barrister
