A group of property owners recently tried to challenge the application of the higher rate of Stamp Duty Land Tax (SDLT) they had to pay in addition to the standard rates of SDLT on the second main residence. However, the First Tier Tribunal (FTT) ruled against them, dismissing their claims for the SDLT relief.
The case concerns whether transferring 1% of an existing main residence is counted as “disposal of major interest” for the purpose of qualifying for the replacement of the main residence relief.
Even though the ruling is not all doom and gloom for taxpayers, as the homeowners in this case did not get the win they wanted, the judgment sheds light on the commencement works, whether intent should also be as justifiable as the actions, while showing the Tribunal’s willingness to intervene HMRC’s narrow approach, giving everyone a clearer roadmap for future property moves.
The Background
Imagine buying a fancy new house, only to be hit with a hefty tax bill. That’s what happened in Sajedi and Ors v HMRC, decided on 6 March 2025. The case involved two residential property transactions, each with two appellants, combined into one hearing by the FTT due to overlapping legal issues around SDLT.
The Appellants sought refunds of higher SDLT rates, claiming they had replaced their only or main residence and were entitled to relief. HMRC rejected the claims, prompting the dispute to reach the FTT.
To avoid higher rates on a new main residence, you must dispose of your old one in accordance with strict legal conditions. One key hurdle was Paragraph 3(7)(ba) of Schedule 4ZA of the Finance Act 2003, introduced in 2018, which blocks relief if either spouse retains an interest in the previous main residence.
Here, the Appellants bought their new main residence before 2018 but sold the old ones after; raising the critical question: could the 2018 rule apply retroactively to transactions started earlier?
While the legal battle was initially mainly about when the new rule kicked in, the FTT decided to peek under the hood of the tax law in general, not just the 2018 amendment.
The FTT noted that instead of selling their old main residence outright, the Appellants used a “declaration of trust” to transfer a 1% beneficial interest to their respective partners. This legal manoeuvre effectively diluted their ownership but fell short of a complete disposal. The Tribunal questioned whether this partial transfer satisfied the requirements for being declared as a “disposal” of their old main residence, a condition which is essential to satisfy for the higher rate tax relief.
Tribunal’s Decision and Key Legal Issues
The FTT consisted of two major legal questions, the first dispute relating to the commencement rules, this was the actual dispute why this case was brought up to the FTT in the first place, but the second arose through FTT’s own interventionist approach to ensure cases are decided on the basis of a correct interpretation of the law and so they meet all legal requirements, not just those disputed by HMRC.
A notable aspect of the case was the FTT’s decision to intervene on a legal issue neither party had raised. Both HMRC and the taxpayers had assumed the 1% transfers met the statutory definition of a disposal. However, the FTT emphasised its duty to independently assess legal requirements, stating that parties cannot “agree matters of law” or overlook statutory intent.
Commencement Rules
The main contention between the Appellants and HMRC was regarding the commencement rule. While HMRC argued that stricter anti-avoidance laws should govern the property owner’s sales of their old main residence, which happened after 2018, the Appellants countered that they bought their new main residence (the one taxed at higher rates and now under refund claim) before 2018. This meant the older, more lenient rules should govern their transactions. The FTT sided with the Appellants, confirming that it is only the purchase of the new main residence which is relevant to the application of the commencement provision. If not, it would be like unfairly changing the rules of the game after the players have already begun playing.
Moreover, as highlighted by the FTT, it is a fundamental principle of statutory interpretation that legislation should not be construed as having retrospective effect unless such intention is manifest from the Act's express terms or by “necessary and distinct” implication.
The 1% Dilemma: What Counts as a “Disposal”
While the Appellants won on the timing of commencement, the victory was short-lived, as they lost on the substantive issue: whether transferring a 1% beneficial interest constituted a valid “disposal of a major interest” under the Legislation. In the Appellants’ case, the circumstance concerned not the disposal of their entire interest, but rather the disposal of just a 1% stake in the freehold.
The FTT applied a purposive interpretation of the law, aligning with the Ramsay principle (which targets artificial tax-avoidance schemes). It concluded that a disposal must have a “real-world impact” on property rights and ownership. The 1% transfers were deemed mere “technical disposals”, a transaction appearing only on paper, which did not meaningfully alter the parties’ relationship to the property. All in all, the 1% transfers were seen as a legal loophole, not a genuine sale.
What This Means for Other Taxpayers
Retrospective application of amendments
The decision emphasises the well-established principle that statutory provisions, especially those which levy taxes, should not be construed as having retrospective effect unless such interpretation is apparent through express language in the acts or a necessary and unambiguous implication to that effect.
Clarity on “Real-World” Disposals
The ruling clarifies that those transactions lacking economic substance, such as fractional transfers designed solely to trigger tax relief, will not satisfy statutory conditions. Tribunals will scrutinise whether the transfers have a real-world impact on ownership or beneficial rights and closely assess whether the disposal is genuine or just a legal title.
Warning for Taxpayers and Advisors
The case underscores the risks of relying on HMRC’s oversight or narrow legal arguments. Tribunals may independently raise issues to uphold legislative purpose, even if unargued by either party. Taxpayers must ensure all legal requirements are met, not just those under dispute.
The Takeaway
While the homeowners won the battle over timing, they lost the war. The case reminds us that tax rules are not just about percentages and due dates but fairness and intent. Creative strategies might work… until the court asks, “But does this actually make sense?”
In the present case, even though the timing of the new rule's commencement was resolved in the taxpayers’ favour, they still had to demonstrate that they genuinely disposed of their old main residence in substance, not merely in form. Simply restructuring ownership while retaining beneficial interest in the property will not satisfy the statutory requirements for avoiding higher rates. Shuffling of ownership without changing who owns or benefits from the property is not gonna cut it.
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- Property 118 Ltd and Cotswold Barristers Ltd v HMRC [2026] UKFTT 1111 (TC) - 8 August 2026
- Stamp Duty on New Builds: What Buyers Need to Know - 1 April 2026
