Ladson Preston Ltd and Another v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 November 2022 |
| Neutral Citation | [2022] UKUT 301 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 301 (TCC)
Judge Jonathan Richards, Judge Phyllis Ramshaw
Upper Tribunal (Tax and Chancery Chamber)
Stamp duty land tax – Multiple dwellings relief – Whether buildings in process of being constructed for use as dwellings – No – Effective date of transaction – Whether activities undertaken after time of completion of transaction relevant to determining chargeable interest acquired – No – Appeal dismissed.
In Ladson Preston Ltd and AKA Developments Greenview Ltd v R & C Commrs [2022] BTC 534, the Upper Tribunal upheld the decision of the First-tier Tribunal in that neither of the appellants was entitled to MDR, affirming that the prior grant of planning permission to both appellants was by itself not sufficient to fall within the definition of a dwelling, nor was preparatory work undertaken by one appellant on the effective date but after completion relevant to determining whether the chargeable interest acquired was in the nature of a dwelling under construction.
These were joined appeals. In both cases, at the effective date of completion of the transaction, there were no dwellings on the property concerned, but both appellants intended to build, and subsequently completed, multiple dwellings on the land. In Ladson Preston Ltd, the land was bare at the effective date, but the appellant had obtained planning permission to build two four-storey buildings containing 218 flats, with commercial space on the ground floor. In AKA Developments Greenview Ltd, various structures stood on the land, but the appellant had also obtained prior planning permission for their demolition and for the erection of nine detached dwellings. The appellant had also dug bore holes on the land before the effective date and on the effective date, immediately after completion, had commenced preparatory work for removal of the existing buildings.
Both appellants had claimed MDR on their respective transactions, which HMRC had refused in both cases, after review.
For MDR to be available in respect of a transaction, the main subject-matter of the transaction must consist of an interest in at least two dwellings either alone or in at least two dwellings and other property (FA 2003, Sch. 6B, para. 2(2)). A ‘dwelling’ for this purpose may also be a building or part of a building that is in the process of being constructed or adapted (for use as a single dwelling) (FA 2003, Sch. 6B, para. 7(2)(b)).
Before the FTT, both appellants contended that the obtaining of planning permission should be characterised as part of the process of construction or adaptation. AKA Developments Greenview Ltd (AKA) also argued that (a) its drilling of bore holes on the property before the effective date was part of the process of construction; and (b) that the clearance and demolition work it undertook immediately after completion were nonetheless commenced on the day of completion, so that the construction process could be regarded as having begun for the purposes of the relief.
Dismissing the appeals, the FTT held:
- as regards planning permission, for an entitlement to MDR to arise, the main subject-matter of the transaction had to consist of an interest in at least two dwellings either alone or in at least two dwellings and other property. Anything that was to count as a ‘dwelling’ (including one that was in the process of construction) had therefore to be something in respect of which a chargeable interest could be, and was, transferred from the vendor to the purchaser.Planning permission was not something that a person could own or could be sold or transferred by one person to another. It could not therefore be acquired from the vendor by the purchaser as part of the subject-matter of a land transaction subject to SDLT.This being the case, the appeal by the first appellant (Ladson Preston Ltd) fell to be dismissed in its entirety and the appeal by the second appellant (AKA) fell to be dismissed on those grounds;
- as regards the bore holes made by AKA on the property before the effective date of the transaction, these were the consequences of activities undertaken by AKA itself. They were not something to which the vendor transferred to AKA as part of the subject-matter of the transaction. They certainly could not be characterised as the main subject-matter of the transaction;
- as regards the work undertaken after completion these could not have formed part of the subject-matter of the transaction. Accordingly, at the time of completion, the main subject-matter of the transaction did not include any interest in any dwellings.
Both appellants were given leave to appeal, and the appeal consisted of four grounds:
- The FTT had erred in law on the combined effect of Sch. 6B, para. 2(2) and 7(2)(b), namely, inter alia, that for anything to count as a dwelling, it had to be something in respect of which a chargeable interest could be or was transferred from the vendor to the purchaser (paragraph [92] of the FTT’s decision).
- The FTT had erred in law as to the significance of planning permission.
- In relation to AKA’s appeal, it had erred in law on the significance of the bore holes. HMRC accepted that the FTT had wrongly decided on this issue.
- Also in relation to AKA’s appeal, the FTT had erred in law in dismissing the relevance of actions taken after the time of completion.
The Upper Tribunal’s decision
The proper construction of Sch. 6B, para. 7(2)(b) – what constituted a building or part of a building in the process of being constructed or adapted – was what lay at the heart of the parties’ disagreement on Grounds 1 to 3. The words of that sub-paragraph were not to be considered in isolation. MDR would be available only if Sch. 6B, para. 2(2) was satisfied – there had to be an acquisition of a chargeable interest consisting of an interest in at least two dwellings. Considered in its proper context, Sch. 6B, para. 7(2)(b) clearly indicated that there had to be some physical manifestation of a dwelling on the relevant land before it could be said there was a building in the process of construction for use as a single dwelling. That physical manifestation had furthermore to be of the very building that was in the process of construction for use as a dwelling. The grant of planning permission on bare land was not in itself enough to satisfy these requirements.
Ground 2 accordingly failed. Since the Upper Tribunal (UT) had reached the same overall answer as the FTT, it declined to express any view on Ground 1.
As regards Ground 3, the FTT had erred on two counts. First, the bore holes were physically present when the chargeable interest was transferred to AKA. It did not matter who had dug them. Nor was the FTT right to conclude that the bore holes were too insignificant to constitute the main subject-matter of the transaction. The ‘main subject-matter’ of the transaction was simply a reference to the chargeable interest transferred. However, on the basis of the available evidence, there was no suggestion that the bore holes were to form part of the buildings that were to be constructed on the site, rather their function was to test the ground on which the construction work was to take place. Although the FTT’s finding was to be set aside on this point, the outcome was the same, as the presence of the bore holes, whether alone or together with other physical aspects of the land in question, was incapable of meeting the requirements of Sch. 6B, para. 7(2)(b). AKA’s appeal therefore fell to be dismissed on that point also.
As for Ground 4, debates about the precise definition of the effective date of a transaction had no bearing on the availability of MDR, which revolved around the nature of the chargeable interest acquired by the purchaser, which was the chargeable interest as it stood at the time of completion. The FTT had not erred in law in that conclusion. There was therefore no need for the UT to express any conclusion on whether the works undertaken after completion were capable of satisfying the requirements of Sch. 6B, para. 7(2)(b).
Summary
The appeals on Grounds 2 and 4 were dismissed.
The UT remade the decision on Ground 3 but the result was unchanged. The appeal with respect to the bore holes also failed.
The UT had no need to determine Ground 1 and declined to do so.
Although the appeals by both appellants failed, the UT has thrown up several important points.
First, its finding that for there to be a building or part of a building in the course of construction or adaptation, there has to be a physical manifestation of that building and it has to be of the building that is to become a dwelling or dwellings. This is of relevance beyond MDR, as the definition of a dwelling matters for determining whether residential or non-residential rates of SDLT apply, for example.
Second, as this author pointed out in his comment on the FTT decision, there was indeed ‘wriggle room’ on the issue of the bore holes. AKA might have succeeded, and future appellants may succeed, in appealing on these grounds if the relevant Tribunal could be persuaded the bore holes would form part of the dwelling(s) to be constructed.
Third, the question whether the FTT was right to find that for anything to count as a dwelling it had to be something in respect of which a chargeable interest can be and is transferred from the vendor to the purchaser remains open. Further, according to the UT, it was wrong to find that the preparatory work (in this case, the bore holes) had to have been undertaken by the vendor. As this author concluded with respect to the FTT’s decision, there is nothing in the legislation requiring the construction or adaptation works to have been carried out by the vendor.
Comment by Zigurds G Kronbergs, Senior Tax Writer, Croner-i Ltd.
Patrick Cannon, Counsel, instructed by Goldstone Tax Limited appeared for the appellants
Ben Elliott, Counsel, instructed by the General Counsel and...
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