Fish Homes Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 April 2020 |
| Neutral Citation | [2020] UKFTT 180 (TC) |
| Date | 08 April 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 180 (TC)
Judge Charles Hellier
SDLT – (1) whether flat with defective cladding a dwelling for purposes of (i) residential transaction charge and (ii) high-vale residential transaction charge in FA 2003, Sch. 4A, para. 3, (2) relief under para 5 from the high-value charge under FA 2003, Sch. 4A, para. 3 – Para. 5G – Withdrawal of relief – Effect of s. 81(1A).
[1] Mr and Mrs Fish are the directors and majority shareholders of Fish Homes Ltd, the appellant. Prior to the transactions described below Fish Homes owned a small number of residential properties which produced annual rental of some £26,000 per annum.
[2] Mr and Mrs Fish's daughters had inherited some money sometime previously and had agreed that this would be lent to Fish Homes to enable it to increase its property portfolio, and that later they would be repaid to finance the purchase of their own homes. At the time of the transaction their eldest daughter had just finished university and was coming to the end of a stint in America.
[3] In April 2017 Mr and Mrs Fish went to view a two-bedroom flat in a block in Greenwich, having in mind its acquisition by Fish Homes as part of its rental portfolio. It was a fairly new flat having been completed in 2014. It had the benefit of an NHBC guarantee.
[4] Fish Homes exchanged contracts for its purchase in May 2017 and completed the purchase on 18 August 2017. It funded the purchase with the loans from Mr and Mrs Fish's daughters and a “buy to let” mortgage loan.
[5] Unfortunately, and unbeknown to Mr and Mrs Fish, at the time and Fish Homes contracted for and completed the purchase, the flat was in a block which was covered in cladding which was similar to that used on the Grenfell tower block (in which there had been a disastrous fire exacerbated by the cladding) in June 2017. It was only hours after completion that they were told of the problems with the cladding.
[6] After some research Mr and Mrs Fish came to the conclusion that Fish Homes could not let the flat out under a formal tenancy agreement. But, under an informal arrangement, one of their elder daughter's friends agreed to move in and to pay rent. She moved in on 27 August and on 26 September 2017 was joined by the elder Miss Fish who also paid rent.
[7] There followed an anxious period in which Fish Homes received formal confirmation of the problems with the cladding and participated in claims made against NHBC (and later the developer of the block) for the cost of remedial work. The remedial work was eventually started in March 2019 and was completed in June or July of the same year.
[8] Miss Fish and her friend remained living in the flat until July 2019 (some 18 months). When the remedial works had been finished, tenants were found who moved in on formal commercial tenancies (and, as I understood it, at rents greater than those paid in aggregate by Miss Fish and her friend).
[9] The company sent an SDLT return to HMRC on 18 September 2017. The return was completed on the basis that the acquisition was a “residential transaction” and the higher rate of SDLT on “high-value residential transactions” imposed by Schedule 4A Finance Act 2003, was not applicable because of the relief from that higher rate of SDLT afforded by paragraph 5 Schedule 4A (which provided relief on the purchase of properties acquired for a rental business).
[10] HMRC enquired into this return and concluded that the relief afforded by paragraph 5 did not apply. They amended the return changing the rates of SDLT payable by reference to the high-value residential transaction charge. An appeal against this decision was made, and after a review, the appeal was notified to the tribunal. The appeal was notified to the tribunal after the 30 days period following the letter of review. HMRC did not object to the late appeal and in the circumstances, I decided that permission should be given for the appeal to be heard.
[11] HMRC also assessed penalties but by the time this appeal came to be heard they had withdrawn the penalty assessments.
[12] After the appeal was notified to the tribunal the tribunal published its decision in P N Bewley Ltd [2019] TC 06951. In that case the FTT held that a derelict bungalow affected/infused with asbestos was not a dwelling for the purposes of Schedule 4ZA FA 2003 because it was not suitable for use as such. This case prompted Fish Homes to argue in this appeal that the acquisition of the flat was not a residential transaction (and was not be a “high-value residential transaction” for the purposes of Schedule 4A) because the danger created by the cladding meant that the flat was not suitable for use as a dwelling.
[13] Further between the notification of the appeal and the hearing: HMRC (a) accepted that notwithstanding that Miss Fish later resided in the flat, it had not been intended at the effective date that she should reside there so that paragraph 3 relief was potentially available but (b) argues that relief under paragraph 3 should be withdrawn pursuant to paragraph 5G Schedule 4A because Mrs Fish's later residence in the flat triggered one of the conditions in that paragraph for the withdrawal of the relief given by paragraph 3,
[14] Section 42 FA 2003 provides for a charge to tax (SDLT) on land transactions. A land transaction is the acquisition of a “chargeable interest” (section 43) which means any estate in land (section 48). Subject to various exceptions not relevant to this appeal, the purchaser of a chargeable interest must deliver a “land transaction return” to HMRC within 30 days of the “effective date” of the transaction (section 76). Where the transaction consists of an ordinary exchange of contracts followed by completion, the “effective date” of the transaction is the date of completion (section 44).
[15] Section 55 provides the rates of tax when the rules for higher rate transactions do not apply. It provides for rates between 0% and 12% on various slices of the consideration for the transaction if the land is “residential property” , and for lower rates if the land is not residential property. So far as relevant section 116 defines residential property to
mean
- a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use …
and a non-residential property to mean land which is not residential property.
[16] Schedule 4A imposes higher rates of SDLT for “high-value residential transactions”. A land transaction is a high-value residential transaction for this purpose if the subject matter of the transaction consists of a “higher threshold interest” which is defined by paragraph 1 Schedule 4A thus:
- In this paragraph interest in a single dwelling means so much of the subject matter of a chargeable transaction as consists of a chargeable interest in or over a single dwelling (together with appurtenant rights)
- An interest in a single dwelling is a higher threshold interest … if chargeable consideration of more than £500,000 is attributable to that interest.
[17] Paragraph 3 schedule 4A provides that if the purchaser under a high-value residential transaction is a company (such as Fish Homes) then SDLT is payable at 15% upon the whole of the consideration.
[18] But paragraph 5 provides relief from this high-rate charge if the interest in the land-
is acquired exclusively for one or...
To continue reading
Request your trial