SDLT & ATED Update | November 2017

LAYTONS LLP

SDLT & ATED Update November 2017

LAYTONS LLP Our Sectors • • • •

Technology, Communications & Digital Media Construction, Land & Planning Personal Affairs, Private Wealth & Philanthropy Retail & Hospitality

Our Expertise • • • • • • • • • • • •

Banking & Finance Charities Commercial & Corporate Data Protection & Information Disputes Employment & Immigration Family & Matrimonial Insolvency & Restructuring IP & Technology Real Estate Tax Trusts, Estates & Private Client

SDLT & ATED Update | November 2017

SDLT & ATED

Legal Update | November 2017 This update comments on the latest developments on the following: • • • • • • • • •

Higher SDLT rates on purchases of additional residential properties: what counts as a “major interest”?

Residential property: whether land which adjoins a dwelling forms part of its “grounds”.

When are six or more dwellings the subject of a “single transaction”?

The SDLT treatment of purchases of garden or grounds without a dwelling.

Enquiries into SDLT returns Stamp Office’s replies to technical queries Payment of SDLT Purchase of site for residential development Submission of ATED returns

Marc Selby Partner marc.selby@laytons.com +44 (0)20 7842 8000

laytons.com | 3

SDLT & ATED Update | November 2017

What is a "major interest"?

Residential property, whether land which adjoins a dwelling forms part of its “grounds”

In our last Update (January 2017) we noted that HMRC had circulated draft guidance stating their view that an undivided share in a freehold or leasehold property would count as a major interest for the purpose of the 3% surcharge and that HMRC’s interpretation on this point had been criticised.

Clients acquiring one or more dwellings together with nonresidential property will ordinarily be liable to SDLT at the nonresidential or “mixed” rates which will usually (although not always) trigger a charge at a lower effective rate than if the property comprises entirely residential property.

Where a dwelling is acquired together with land which is or forms part of its garden or grounds, the garden and grounds are treated as residential property.

There is a credible argument that an undivided share should not count as a major interest for this purpose. This is important because, in a case where a dwelling is acquired by one or more individuals, the surcharge can only apply if the individuals (or their spouses etc) have a “major interest” in a dwelling other than the purchased dwelling. Arguably, this

Ordinarily, it will be easy to identify land which is within or

test is not satisfied if each of those individuals, eg a husband

forms part of the dwelling’s gardens. Whether land which

and wife, own an undivided share in the other dwelling.

adjoins a dwelling forms part of its “grounds” can be a grey

However, clients seeking to rely on this argument with a view

area and is becoming contentious, with HMRC now opening

to avoiding the surcharge should note the following:

enquiries into SDLT returns where the tax has been computed on a “mixed” or “nonresidential” basis more frequently than

a.

HMRC is firmly of the view that an undivided share can

previously. In such cases, HMRC is likely to contend that all

constitute a major interest, so an SDLT return submitted

land which surrounds and adjoins the dwelling is within its

in reliance of the above argument may be challenged by

“grounds” and that all of the land is “entirely” residential, so

HMRC.

that the residential rate (with the 3% surcharge if relevant) should apply, unless the adjoining land or part of it is being

b. The argument that an undivided share is not a major interest for the purpose of the surcharge is based on a literal interpretation of the legislation. It is arguable that a purposive (nonliteral) interpretation should be applied in order to avoid an unjust or absurd result. c.

There is a risk that this issue may be resolved in HMRC’s favour by the introduction of retrospective legislation.

4 | laytons.com

used for a specific nonresidential purpose and such use is supported by evidence.

SDLT & ATED Update | November 2017

When are six or more dwellings the subject of a “single transaction”?

Purchase of residential garden and grounds without a dwelling

It is possible to acquire residential property with SDLT being charged at the nonresidential rates if what is acquired is six or more separate dwellings which satisfy the conditions in section 116(7) Finance Act 2003.

Where part of a garden or grounds which belong to a dwelling are purchased from a seller who retains the dwelling the 3% surcharge will not apply.

This is confirmed in HMRC’s guidance note on the 3%

It is a condition of section 116(7) that the six (or more)

surcharge. However, there is uncertainty over whether

dwellings are the subject of a single transaction. However,

such transactions trigger a charge at the residential rates

there is currently doubt over what counts as a “single

(albeit without the surcharge) or the nonresidential rates.

transaction” for this purpose. Certainly, all such dwellings

The answer depends on how the definition of “residential

have to be acquired under a single contract. However, what

property” in sub-sections 116(1)(a) and (b) should be

is the position where the dwellings are acquired pursuant

interpreted. In particular, does the word “and” at the end of

to a single contract but, on completion, each dwelling is

section 116(1)(a) mean that subsections (a) and (b) must be

acquired under a separate transfer or lease? This would be

read together, so that the purchase of garden grounds would

a typical transaction where the dwellings are acquired from

only trigger a charge at the residential rate if the purchaser

a developer offplan. The position is arguable since, on one

also acquired the related dwelling? We consider that to be

view, each transfer or lease constitutes a separate transaction,

the better view but clarification has been sought on this point

notwithstanding that they are completed pursuant to a single

from HMRC. We will circulate a further update as soon as a

agreement. However, we consider the better view to be

response is received.

that, if the transfers or leases are completed pursuant to a single contract, the dwellings will be the subject of a single transaction and, indeed, we have obtained clearance from the Stamp Office confirming that they agreed with that view on behalf of the client. If the conditions for the dwellings to be treated as nonresidential in section 116(7) are satisfied then the nonresidential rates will apply, although the purchaser may be able to claim multiple dwellings relief but, in that event, the residential rate with the 3% surcharge would normally apply.

laytons.com | 5

SDLT & ATED Update | November 2017

Enquiries into SDLT returns

Stamp Office’s replies to technical queries

HMRC appear to be opening enquiries into SDLT returns more frequently than previously.

In particular, enquiries are being opened in respect of the following categories of transaction:

Over the last 12 months the Birmingham Stamp Office has recruited more staff to deal with technical queries and clearances, and also to scrutinise or request information in respect of SDLT returns which have been (or should have been but have not been) submitted.

a.

Claims for group and reconstruction reliefs.

b. Returns where the SDLT liability has been computed at

There has been a significant increase in technical queries,

the nonresidential or “mixed” rates (see our commentary

particularly concerning the application of the 3% surcharge,

on “grounds” above).

which has resulted in the average time taken by the Stamp Office to respond to queries being increased to 39 days (the

c.

Where relief is claimed from the 15% rate which applies

target time according to HMRC guidance, being 28 days).

to purchases by companies etc. For example, where relief from the 15% rate is claimed on the basis that the company is acquiring the property for a qualifying property rental business HMRC are checking that the conditions for the relief have been met, e.g. that the property has not been occupied by an individual connected with the acquiring company and, where there is a delay in finding a tenant, that the company has taken

Payment of SDLT HMRC has recently published guidance on payment of SDLT which is available.

“reasonable steps” to find a tenant.

The guidance sets out proposed changes to methods for payment of SDLT, which include the withdrawal of the facility to pay SDLT at the Post Office from 15th December 2017 and a note that, from 13th January 2018, it will no longer be possible to pay SDLT with a personal credit card.

6 | laytons.com

SDLT & ATED Update | November 2017

Purchase of site for residential development A copy of my article on the SDLT position for a developer purchasing a site for residential development recently published in Tax Journal is available on here.

Submission of ATED returns The new digital system for filing of ATED returns was implemented in April 2017 and HMRC estimate that 50% of those liable to ATED are using the new digital filing system.

The former on-line system continues to be available but is likely to be decommissioned in March 2018. Those advising on ATED and preparing ATED returns are reminded that properties subject to ATED should be revalued as at 1st April 2017 for the filing period commencing 1st April 2018.

laytons.com | 7

SDLT & ATED Update | November 2017

Tax We recognise that the tax-planning environment has changed radically over recent years and that there is now far greater statutory regulation and control over perceived, as well as actual, tax avoidance.

Our Tax advisers must now understand and advise on increasingly complex anti-avoidance rules, including the new rules which allow the UK tax authority to demand up-front payment of disputed tax where they are challenging a scheme. We strive to achieve what is practical and possible and draw attention to the real risks.

Our Team John Gavan

Munazza Hollingsworth

Partner john.gavan@laytons.com +44 (0)161 214 1600

Solicitor munazza.hollingsworth@laytons.com +44 (0)20 7842 8000

Gareth Hughes

Marc Selby

Partner gareth.hughes@laytons.com +44 (0)20 7842 8000

Partner marc.selby@laytons.com +44 (0)20 7842 8000

Jonathan Silverman

Cameron Sunter

Consultant jonathan.silverman@laytons.com +44 (0)20 7842 8000

Partner cameron.sunter@laytons.com +44 (0)20 7842 8000

8 | laytons.com

This information is offered on the basis that it is a general guide only and not a substitute for legal advice.

We cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information.

LAYTONS

LLP

London

Manchester

Guildford

2 More London Riverside London SE1 2AP +44 (0)20 7842 8000 london@laytons.com

22 St. John Street Manchester M3 4EB +44 (0)161 214 1600 manchester@laytons.com

Ranger House, Walnut Tree Close Guildford GU1 4UL +44 (0)1483 407 000 guildford@laytons.com

www.laytons.com

Š Laytons LLP which is authorised and regulated by the Solicitors Regulation Authority (SRA Nº 566807). A list of members is available for inspection at the above offices.