This is a cautionary tale about the need to obtain timely tax advice when undertaking property transactions, especially when there is an element of complexity involved. Under the UK’s vast and ever expanding tax legislation, the failure to do so can result in eye-watering tax charges being levied. The following is a case in point, in which our firm acted for the client.
In April 2018, Mr Goldsmith exchanged on a house in London at a price of £1.45m. During the negotiations leading to exchange, he arranged with the seller for consent to enter the house between exchange and completion to carry out minor refurbishment works. Following exchange, Mr G assigned the contract to a newly formed company G Goldsmith Ltd, in which he was the sole director and shareholder. Completion duly took place in June 2018 and the full amount of SDLT was paid, in the amount of £132k (based on the rates then in force).
What Mr Goldsmith and his solicitor (who submitted the SDLT return) did not appreciate was that the assignment of the contract triggered an SDLT charge under the rules for ‘pre-completion transactions’ (FA 2003 Sch 2A para 4). Under this provision, a notional purchase is deemed to take place between the seller and the original buyer (Mr Goldsmith), based on the terms of the contract before it was assigned.
Our firm was instructed by Mr G at the end of 2018, in connection with a separate claim for Multiple Dwellings Relief that the company wished to pursue, given that the company had begun works to reconfigure the house to three separate flats prior to completion. Under Sch 6B para 2, when works to create a new residence have commenced prior to the effective date of the transaction, these can be treated as being already in existence and thus eligible for MDR.
The resulting amendment to the SDLT return led to a long drawn out correspondence with HMRC on the status of the flats, whether they were sufficiently self-contained and the level of works that had been carried out prior to completion, which ultimately was decided in favour of the company. However, what neither we nor the HMRC officer was aware of at the time was the prior assignment of the contract from Mr G to his company between exchange and completion. This was easy to miss, given that he was also director of the company, and that he had named the company after himself.
Consequently, by the time that we realised that there had been an assignment and HMRC raised a discovery assessment, almost four years had passed and it was too late to file a claim for relief under Sch 2A para 15. As a result, a single purchase of a house for £1.45m has resulted in two separate SDLT liabilities totalling £218,250.
It is noteworthy that in her judgment [G Goldsmith Ltd and another v HMRC [2024] UKFTT 927 (TC)], Judge McKeever records her apparent regret at this outcome, stating: ‘It seems extremely harsh of HMRC to seek to tax Mr Goldsmith on the full amount of the SDLT without any reliefs, when the Company has already paid the correct amount of SDLT on the purchase of the Property. Effectively they are collecting double tax on the same transaction.’
However, she was constrained to apply the law as stated, and this resulted in a double charge based on the facts of the case.
For SDLT specialists, the judgment does also contain a valuable discussion concerning the meaning of taking possession, and the judge states her opinion that the (fairly substantial) works carried out by Mr G prior to completion did not meet the threshold for taking possession (which would have meant that MDR was not available).
Overall, this case highlights the complexities of the SDLT legislation and illustrates how a fairly routine assignment of a contract (which often happens in property auctions), carried out for commercial reasons, led to a massive tax charge because no advice was sought at the time.
With the ‘Halloween Budget’ just over a week away, is it too much to ask Rachel Reeves and her team to look again at some of these provisions which, while generating plentiful work for tax advisers, provide huge uncertainty to people wishing to buy and invest in UK property?
Home >Articles > A tale from the frontline of SDLT
A tale from the frontline of SDLT
Double taxation on the same transaction.
This is a cautionary tale about the need to obtain timely tax advice when undertaking property transactions, especially when there is an element of complexity involved. Under the UK’s vast and ever expanding tax legislation, the failure to do so can result in eye-watering tax charges being levied. The following is a case in point, in which our firm acted for the client.
In April 2018, Mr Goldsmith exchanged on a house in London at a price of £1.45m. During the negotiations leading to exchange, he arranged with the seller for consent to enter the house between exchange and completion to carry out minor refurbishment works. Following exchange, Mr G assigned the contract to a newly formed company G Goldsmith Ltd, in which he was the sole director and shareholder. Completion duly took place in June 2018 and the full amount of SDLT was paid, in the amount of £132k (based on the rates then in force).
What Mr Goldsmith and his solicitor (who submitted the SDLT return) did not appreciate was that the assignment of the contract triggered an SDLT charge under the rules for ‘pre-completion transactions’ (FA 2003 Sch 2A para 4). Under this provision, a notional purchase is deemed to take place between the seller and the original buyer (Mr Goldsmith), based on the terms of the contract before it was assigned.
Our firm was instructed by Mr G at the end of 2018, in connection with a separate claim for Multiple Dwellings Relief that the company wished to pursue, given that the company had begun works to reconfigure the house to three separate flats prior to completion. Under Sch 6B para 2, when works to create a new residence have commenced prior to the effective date of the transaction, these can be treated as being already in existence and thus eligible for MDR.
The resulting amendment to the SDLT return led to a long drawn out correspondence with HMRC on the status of the flats, whether they were sufficiently self-contained and the level of works that had been carried out prior to completion, which ultimately was decided in favour of the company. However, what neither we nor the HMRC officer was aware of at the time was the prior assignment of the contract from Mr G to his company between exchange and completion. This was easy to miss, given that he was also director of the company, and that he had named the company after himself.
Consequently, by the time that we realised that there had been an assignment and HMRC raised a discovery assessment, almost four years had passed and it was too late to file a claim for relief under Sch 2A para 15. As a result, a single purchase of a house for £1.45m has resulted in two separate SDLT liabilities totalling £218,250.
It is noteworthy that in her judgment [G Goldsmith Ltd and another v HMRC [2024] UKFTT 927 (TC)], Judge McKeever records her apparent regret at this outcome, stating: ‘It seems extremely harsh of HMRC to seek to tax Mr Goldsmith on the full amount of the SDLT without any reliefs, when the Company has already paid the correct amount of SDLT on the purchase of the Property. Effectively they are collecting double tax on the same transaction.’
However, she was constrained to apply the law as stated, and this resulted in a double charge based on the facts of the case.
For SDLT specialists, the judgment does also contain a valuable discussion concerning the meaning of taking possession, and the judge states her opinion that the (fairly substantial) works carried out by Mr G prior to completion did not meet the threshold for taking possession (which would have meant that MDR was not available).
Overall, this case highlights the complexities of the SDLT legislation and illustrates how a fairly routine assignment of a contract (which often happens in property auctions), carried out for commercial reasons, led to a massive tax charge because no advice was sought at the time.
With the ‘Halloween Budget’ just over a week away, is it too much to ask Rachel Reeves and her team to look again at some of these provisions which, while generating plentiful work for tax advisers, provide huge uncertainty to people wishing to buy and invest in UK property?
