Goldsmith v HMRC - SDLT case on meaning of taking possession
In Goldsmith v HMRC, the FTT found that only occupation as if a property was owned by the purchaser was ‘possession’ for SDLT purposes
In Goldsmith the FTT examines what taking ‘possession’ means for SDLT purposes.
The recent First-tier Tribunal case, Goldsmith Limited and Mr Goldsmith v HMRC [2024] UKFTT 927 (TC) considers when entry onto a property before completion triggers taking possession of the property and hence brings forward Stamp Duty Land Tax (SDLT) payment and filing obligations on the basis the contract has been ‘substantially performed’. This is a common issue for purchasers who may wish to agree pre-completion access to a property, for example to carry out fit-out works, without bringing forward their SDLT payment or where they wish to onsell, without jeopardising subsale relief.
The FTT concluded that possession for SDLT purposes requires the purchaser to go into occupation by agreement with the vendor and as if the purchaser had then become the owner of the property.
Background
Mr Goldsmith (the Taxpayer) was to acquire a property and convert it from one dwelling to three. He exchanged the contract personally, but then assigned it to his newly formed company – G Goldsmith Ltd (the Company) – which completed the purchase. A contract clause allowed for the Taxpayer to access the property between exchange and completion to carry out decorative works, with limited hours of access and the keys needing to be handed back at the end of each day. Much more work was done than contractually permitted, including structural changes, to the extent that the Company trespassed on the property. By completion, the property was in the process of being adapted into three dwellings. The Company claimed multiple dwellings relief (MDR) for three dwellings, reducing its SDLT liability from £132,250 to £85,998.
One of HMRC’s main arguments in the enquiry was that there must have been substantial performance of the contract due to the Company’s contractors taking possession of the property before they started the adaptation work, meaning no MDR relief should be due.
Substantial Performance
Judge McKeever determined there was no substantial performance. First, the occupation to be considered was that agreed with the vendor. The fact that the Taxpayer went beyond what was permitted under the contract was not relevant. She then stated at paragraph 78 of the decision that in her view “taking possession of the subject of the contract”:
“…requires the buyer to go into occupation of the property as if they had become the owner at that point. They may have to comply with conditions or limitations under the contract, lease licence or other agreement, but there must be an element of freedom to occupy as and when they wish, including all the time, a right to any rents from the property if relevant (specifically dealt with in section 44(6)(a)) and generally, responsibility for the property and liability for the outgoings. As HMRC puts it in its SDLT Manual, the purchaser obtains “the keys to the door” and is entitled to occupy the property”.
Though only a First-tier decision and hence not binding in law, this decision gives some reassurance that with well-defined restrictive licences to access the land, the likelihood of accidental substantial performance on preparatory works, storage etc, even potentially extensive fit-out works, may be significantly diminished.
Assignment of Rights relief
Despite ‘winning’ on the substantial performance point so MDR was available to the Company, things didn’t end happily for the Taxpayer.
It was found that there had been an assignment of rights from the Taxpayer to the Company (the ultimate purchaser) and so, although the Taxpayer was not to be taxed on his actual transaction, he was the purchaser in a notional transaction under the SDLT subsale rules for which he should have claimed subsale relief. He was now out of time to make this claim. HMRC could have issued a determination which the Taxpayer could then have displaced by filing a return claiming the relief, but HMRC chose instead to issue a discovery assessment.
The result was a cumulative SDLT charge of more than double that which should have been paid as the Company had correctly paid tax at the MDR rates, but the Taxpayer was also required to pay tax of £132,250.
