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Mayfair Avenue Ltd v HMRC: SDLT and the 15% Higher Rate

Published by UK Property Accountants
Posted Date: June 7, 2024 , Modified Date: June 11, 2024

In a recent case regarding Stamp Duty Land Tax (SDLT), the First Tier Tribunal (FTT) examined the application of SDLT and the implications of a higher 15% SDLT rate on property purchases by companies. The case highlights the importance of careful navigation of UK tax laws and the potential financial implications of non-compliance. Navigating the world's most complex tax system without caution can lead to substantial tax liabilities. Conversely, simple caution with the right tax advice can result in considerable tax savings.

The FTT dismissed the appeal by Mayfair Avenue Limited (MAL) against the closure notice regarding the 15% SDLT rate applied to the purchase of 94 Mayfair Avenue (the “Property”). The decision clarifies the distinction between qualifying and non-qualifying individuals occupying the property and the intention of the occupier during the purchase.

What are the Facts?

Mr Ali owned the Property and intended to sell it to finance the purchase of a new home. To facilitate this, he transferred his existing home to a limited company he established, MAL, for £650,000. This transfer allowed Mr Ali to have the financial means to buy a new residence for himself and his family.

Stamp duty land tax (SDLT)

However, there was a delay in the purchase of Mr Ali's new home. Consequently, Mr Ali and his family continued to live in the old home, now owned by MAL, for ten months. Despite Mr Ali paying market rent to the company during this period, the occupancy raised questions about the SDLT liability for the company, as Mr Ali (a non-qualifying individual) intended to live in the Property at the date of purchase.

MAL appealed to the FTT against the closure notice issued by HMRC, which imposed an additional SDLT of £70,500 on MAL. MAL argued that their ultimate intention was to rent out the property, no financial gain was made by the occupying family as they paid the market rent, and Mr Ali was unaware of the legal requirements barring non-qualifying individuals from occupying the property after the purchase.

15% SDLT Rate and Its Exceptions

Under UK tax law, when a company purchases a residential property valued over £500,000, a higher SDLT rate of 15% applies. This regulation aims to discourage companies from acquiring high-value residential properties for purposes such as rental investments or property development.

There are exceptions to the 15% rate, so far as relevant to this case, if the property is not occupied by someone connected to the company, referred to as a "non-qualifying individual.” Relief from the higher rate can be claimed, as far as relevant to this case, if the property is intended to be rented out or used for business purposes. However, if the company's intention at the time of purchase is for a non-qualifying individual to occupy the property, the relief does not apply.

Tribunal Decision

The FTT dismissed Mr Ali’s appeal and upheld HMRC’s imposition of an additional SDLT of £70,500 on MAL. The FTT disregarded the long-term intention of the company to rent out the property, focusing on the fact that Mr Ali, who owned and controlled the company, was a non-qualifying individual who occupied the Property. This precluded the company from applying for relief from the higher rate of SDLT, and the 15% rate applied to the transaction. 

The decision rested on the intention at the time of the property's acquisition by MAL. The FTT examined whether the primary intention was for Mr Ali to occupy the property. Despite Mr Ali's claims of a long-term plan to rent out the property, the immediate intention for Mr Ali and his family to reside there was evident.

Implications of the Decision

For Mr Ali, the decision meant that MAL was liable for the higher 15% SDLT rate on the £650,000 property transfer, resulting in significant financial implications. The ruling also emphasised that paying market rent does not mitigate the SDLT liability if the property's intended occupant is a connected individual.

Despite the FTT’s reliance on the argument that the intention at the date of purchase was to occupy the Property, the actual occupancy of the property takes precedence over the initial intent. If a non-qualifying individual occupies the Property at any point within three years after the purchase, the higher SDLT rate applies, even if the initial intention was not to occupy.

This indicates that straightforward adherence to this decision may still lead to undesirable tax liabilities. For example, consider a scenario where Mr Ali purchases a property through MAL with no initial intention to occupy it. However, if Mr Ali were to occupy the property at any point within the three-year period following the purchase, even for a single day, MAL would not be eligible to apply for the 15% SDLT relief. Therefore, the FTT’s overemphasis on initial intent in this decision does not fully align with the law.

The FTT also considered the appellant appearing to indirectly plea the “ignorance of law” defence. However, the FTT asserts, as a matter of basic legal principle, that ignorance of the law cannot exempt one from its application.

The decision underscores the importance of seeking professional advice before purchasing property. This case serves as a cautionary tale, emphasising the principle of “forewarned is forearmed” and highlighting the potential perils of inadequate caution in the pre-transaction stages. Any decent tax advisor would have advised Mr Ali to refrain from occupying the property after the purchase date.

UK Property Accountants
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