Ladson Preston Ltd AKA Developments Greenview Ltd v Revenue & Customs (STAMP DUTY LAND TAX- Multiple Dwellings Reliefr)
[2021] UKFTT 251 (TC) · 2021-06-09
[35]From the authorities cited to us we derive the following propositions relevant to this issue, namely(1) the services must be connected with the construction of the building;(2) services which facilitate or have a substantial connection with the construction such as preparatory or site clearance work or ground or earthworks are connected with the construction of the building;(3) there must be a temporal connection between those services and the construction of the building; whether there is such a connection is a question of fact and degree . 78. Given the Tribunal’s findings below, it has ultimately proved unnecessary to consider these authorities in further detail. 79. A premise of LPL’s argument is that without obtaining planning permission “construction could not lawfully occur”, and that obtaining planning permission is “necessary for construction to occur” (Appellant’s skeleton, paragraph 15). LPL contends that for this reason, obtaining planning permission is part of the process of construction. 80. However, no legislation or judicial authorities relating to planning permission were cited in argument in support of this premise. When asked by the Tribunal about the legal effects of planning permission, Mr Cannon accepted the following. (a) Anyone can apply for planning permission for a property, even if that person has no interest in the property. For instance, planning permission may be applied for by a person who is potentially interested in making an offer to purchase a property, and who wants to be sure before doing so that the property if purchased can be used for the desired purpose. Such a person might, after obtaining the planning permission, ultimately never buy the property in question. (b) It is possible for different planning permissions for different purposes to be granted and to be in force in respect of the same property at the same time. Thus, for instance, a particular property that is bare land might at the same time have planning permission for the construction of a single dwelling, and separate planning permission for the construction of multiple dwellings, and further separate planning permission for use for non-residential purposes. (c) Building without planning permission is not an offence. If a building is constructed without planning permission, it is possible to apply for planning permission retrospectively, although in this situation there is the risk that planning permission will be refused, with the result that the building will have to be demolished. There is however a concept of “established use” under which planning permission will effectively be granted automatically if the building has stood in plain sight without objection for at least four years. 81. Mr Cannon was asked by the Tribunal whether he contends that dwellings would be “in the process of being constructed” on the EDT if planning permission for the dwellings has been obtained beforehand by potential purchaser A, but the property is in fact then bought instead by B who has no intention of erecting dwellings on the land. Could B claim MDR on the transaction despite having no intention to construct multiple dwellings, merely because planning permission for multiple dwellings has previously been obtained by A? Mr Cannon accepted that in this situation, the mere fact that planning permission has been granted for multiple dwellings would be insufficient. He clarified that in order for the dwellings to be “in the process of being constructed” on the EDT, it is necessary not only that planning permission for the dwellings has been granted, but that the person acquiring the land has the intention of constructing the dwellings in accordance with that planning permission. Mr Cannon also accepted that the purchaser’s intention must have a realistic prospect of being realized. 82. Mr Cannon was asked by the Tribunal what the position would be if, despite having such intentions on the EDT, the purchaser subsequently never constructs the dwellings, due to a change in plans. 83. Mr Cannon submitted as follows. If the purchaser has such a change of plans within the “relevant period” (paragraph 6(1)(b) and (5) Schedule 6B FA 2003), this would be an “event” requiring the amount of the MDR to be repaid (paragraph 6(1)(b) and (7) Schedule 6B FA 2003). However, construction of the multiple dwellings does not in fact need to be completed within the relevant period. Thus, if at the end of the relevant period the purchaser still has the intention of constructing the multiple dwellings which are still in the process of being constructed, the claw-back provision in paragraph 6 Schedule 6B FA 2003 will not operate. 84. Mr Cannon also submitted that obtaining planning permission is not the only way in which the process of construction of dwellings can commence. Thus, if multiple dwellings are constructed without planning permission having been obtained, this would be immaterial if before the EDT the process of construction has begun by other means. 85. On the basis of the above, the Tribunal does not accept the submission in the Appellant’s skeleton that obtaining planning permission must be part of the construction process because it is “necessary for construction to occur”, and because “construction could not lawfully occur” without it. While the grant of planning permission may in practice be a step almost always taken by developers before commencing physical construction of buildings, the physical construction can in fact occur without it. Furthermore, the mere fact that planning permission has been obtained for the construction of dwellings does not mean that anyone has actually decided to build them, or that anyone ever will decide to do so, or that anyone will in fact do so. 86. Ultimately, even Mr Cannon accepted this, given his refinement to his argument described in paragraph 81 above. The argument that was ultimately put on behalf of the Appellants, as the Tribunal understands it, might be articulated as follows. The “process of construction” is not confined to the physical process of construction, but includes also related non-physical activities. If a person decides to undertake a project to build multiple dwellings, then the process of construction (the building project) commences when these non-physical activities commence, even if physical construction work on the dwellings themselves has not yet commenced. If the process of construction has been commenced in this way, then even if physical construction has not yet started by the EDT, the dwellings will be “in the process of being constructed” on the EDT, provided that the intention to complete the process still exists. 87. Such an argument assumes that obtaining planning permission is one kind of “non-physical” activity that may suffice to commence the process of construction, and implies that there may be other kinds of non-physical activities that would similarly suffice. These appeals do not directly raise the question of what such other activities might be, if this argument is correct. However, it can be easily imagined that purchasers in other cases might argue, for instance, that it is sufficient to begin the process of construction that architect’s plans have been prepared (or possibly even just commissioned), or that contracts have been concluded with suppliers or sub-contractors for the building project, or that finance for the project has been secured , and so forth. 88. Having carefully considered the Appellants’ argument, the Tribunal finds that it contains a fundamental flaw. 89. The Appellants’ argument assumes that for MDR to apply, it is sufficient that multiple dwellings are in the process of being constructed on the EDT. However, that is not correct. 90. Paragraph 7(2)(b) is not an independent basis of entitlement to claim MDR. In other words, the mere fact that paragraph 7(2)(b) is satisfied does not mean that MDR applies. This provision says merely that a dwelling in the process of being constructed counts as a dwelling for purposes of Schedule 6B . In order to determine whether there is an entitlement to claim MDR, this provision needs to be read together with all of the other relevant provisions of the FA 2003, especially those referred to in paragraphs 32 and 38 above. 91. SDLT is a tax on a transaction . The transaction in this case is the acquisition by LPL from the seller of the freehold title to the property. For that transaction to fall within Schedule 6B FA 2003, such that there is an entitlement to MDR in respect of that transaction , paragraph 2(2) Schedule 6B FA 2003 requires that the main subject matter of that transaction must consist of “an interest in at least two dwellings”, or of “an interest in at least two dwellings and other property”. 92. The Tribunal therefore concludes that anything that is to count as a “dwelling” pursuant to paragraph 7 Schedule 6B (including a dwelling in the process of being constructed) must be something in respect of which a chargeable interest can be, and is, transferred from the seller to the purchaser as, or as part of, the subject matter of the transaction that is subject to SDLT. 93. The question in this case is therefore whether the main subject matter of the transaction of sale by the seller to LPL was an interest in any “dwellings” (as defined in paragraph 7 Schedule 6B).[94]The planning permission was not something that was transferred from the seller to LPL as part of the subject matter of the transaction. Apart from anything else, planning permission is not something that a person can own. There is no property title to planning permission that can be transferred from one person to another, and which LPL could have acquired as part of the subject matter of the transaction. Nor is planning permission any other kind of right held by one person that can be sold or transferred to another. As stated in Signature Realty Ltd v Fortis Developments Ltd [2016] EWHC 3583 (Ch) (a case not cited in argument) at [22], “ There are no statutory or other intellectual property rights in the planning permission itself; anyone may avail themselves of it so long as they satisfy its conditions ”. Thus, even if it had been the seller rather than LPL who had applied for and been granted planning permission, this planning permission could not have formed part of the subject matter of the land transaction between the seller and LPL on which SDLT was payable .95. Furthermore, the planning permission was in fact applied for by LPL itself, and not the seller. LPL therefore had that planning permission even before it acquired the property, and LPL would have continued to have that planning permission, whether or not it had ultimately ever completed the transaction for the purchase of the property.96. Other kinds of “non-physical” activities of the kind referred to in paragraph 87 above are similarly activities undertaken by the buyer. They are not something that is acquired from the seller by the purchaser as part of the subject matter of the transaction that is subject to SDLT . A buyer’s own plans and arrangements made before the EDT for constructing dwellings on the property do not form part of the subject matter of the transaction.97. The Tribunal therefore concludes that the main subject matter of the transaction did not include any interest in any “dwellings”. LPL is therefore not entitled to claim MDR in respect of the transaction. Paragraph 7(4) Schedule 6B98. By reason of the same conclusions above, LPL’s argument in relation to paragraph 7(4) must also be rejected. Because the subject matter of the transaction that was subject to SDLT did not did not consist of any interest in any dwellings, the subject matter of the transaction cannot have included any land subsisting for the benefit of any such dwellings. AKA Validity of the enquiry notice and the closure notice The enquiry notice99. The Appellant’s skeleton argument does not challenge the validity of the 5 August 2019 enquiry notice (as opposed to the closure notice), but HMRC nonetheless acknowledge that it contains an error and seek to defend its validity.100. The error in the enquiry notice is a statement that the enquiry is being conducted pursuant to Schedule 11A FA 2003 into a claim made by AKA for overpayment relief in respect of SDLT. In fact, AKA had not made a claim for overpayment relief pursuant to Schedule 11A, but rather had applied to amend the SDLT return pursuant to paragraph 6 of Schedule 10 FA 2003, and the enquiry was thus in fact to be conducted pursuant to Part 3 of Schedule 10.101. By virtue of s 83(2) FA 2003, this mistake will not invalidate the enquiry notice, provided that the enquiry notice is nonetheless substantially in conformity with Part 4 FA 2003 and its intended effect was reasonably ascertainable by the Appellant.102. The Tribunal is satisfied that apart from this error, the enquiry notice was substantially in conformity with the relevant provisions of the FA 2003.103. The enquiry notice gave the correct details of the property and the unique transaction reference number. The enquiry notice, which was sent following a request made by the Appellant for repayment of an amount of SDLT on the ground that the SDLT return had been incorrectly completed, stated that “I am checking into your claim for overpayment relief regarding their Stamp Duty Land Tax return for the above acquisition”. The Appellant’s agent responded to the enquiry notice on 27 August 2019, providing information that had been requested by HMRC. There is no suggestion in that letter that the agent did not understand what the enquiry was about. On the material before the Tribunal, it is not apparent that there was anything else that AKA could have thought that the enquiry was about. The Tribunal is accordingly satisfied that the intended effect of the enquiry notice was reasonably ascertainable by the Appellant and its agent.104. The Tribunal therefore finds that the enquiry notice was valid. The closure notice105. AKA argues that the closure notice is not substantially in conformity with Part 4 FA 2003, for two reasons. First, it is said that the closure notice fails to state that it is amending the Appellant’s SDLT return as required by paragraph 23(2)(b) Schedule 10 FA 2003. Secondly, it is said that the closure notice fails to state the true amount of the tax claimed by HMRC, contrary to the requirement in paragraph 23(2)(b) Schedule 10 FA 2003 that the closure notice must “make the amendments of the return required to give effect to [HMRC’s] conclusions”.106. As to the first of these points, it is correct that the closure notice does not state in terms that it is amending the SDLT return. However, it does state in terms that it is a closure notice under paragraph 23 Schedule 10 FA 2003, that the amount of SDLT due as a result of HMRC’s check, less the amount of SDLT already paid, is a specified amount, and does conclude by stating:
“Please pay this amount now. We’ll continue to add interest on a daily basis until all the tax has been paid.”
The Tribunal is satisfied that it was necessarily implicit that the closure notice was amending the SDLT return, and rejects the first of AKA’s points. 107. As to the second of these points, there has been some confusion. 108. The grounds of appeal in the Appellant’s notice of appeal did not include a challenge to the validity of the closure notice. 109. The HMRC statement of case subsequently stated at paragraph 45 as follows: HMRC regrets to inform the Tribunal that the closure notice sent on [11 September 2019] stated an incorrect amount due, but the correct amount was stated in HMRC’s view of the matter letter. 110. The Appellant’s skeleton argument then challenges the validity of the closure notice, contending that the amount stated in the closure notice was not the correct amount “ required to give effect to [HMRC’s] conclusions” within the meaning of paragraph 23(2)(b) Schedule 10 FA 2003, and contending that this error could not be remedied by the HMRC review conclusion letter because paragraph 23(3) FA 2003 provides that “ A closure notice takes effect when it is issued ”. 111. However, the HMRC skeleton argument at paragraphs 51, 55 and 58 then states: HMRC apologise that paragraph 45 of the joint statement of case was wrong about the above point, in that the correct amount due was stated in the original closure notice. … On 15 November 2019, HMRC sent the review conclusion letter to AKA informing them that the closure notice had been upheld. It was in this correspondence that an incorrect amount due was quoted to AKA. … the Appellants have misunderstood the position at paragraph 18 of their skeleton, possibly due to the error in HMRC’s joint statement of case. The closure notice correctly stated the additional tax …; it was the review conclusion letter which regrettably stated the wrong figure. 112. At the hearing, HMRC confirmed its position that the closure notice states correctly the amount of additional tax that will be due if the conclusions in the closure notice are correct, and that it is the review conclusion letter that states an incorrect figure. 113. The Tribunal finds as follows. (a) No challenge to the closure notice was included in the AKA’s grounds of appeal. This challenge was raised for the first time in the Appellant’s skeleton argument. Before raising it, the Appellant should have applied to the Tribunal for permission to add a new ground of appeal. (b) If the closure notice were a legal nullity as a result of giving an incorrect figure for the amount of tax due, the result would be that the HMRC enquiry is still open, and it would fall to HMRC now to issue a valid closure notice. Given that there is no time limit within which HMRC must issue a closure notice, the only practical effect of nullity of the closure notice would be to cause delay. (c) Furthermore, if the error were to invalidate the closure notice, such that it is a legal nullity, there would be no closure notice against which an appeal could be brought. That would call into question the validity of this appeal. (d) AKA’s argument is that the closure notice will be invalid if it contains an error as to the amount of tax charged, and that its validity cannot be saved by s 83(3) FA 2003, since s 83(3) FA 2003 (unlike s 82(2)) only applies to assessments and determinations and not to closure notices. The Tribunal does not accept that argument. If the amount of tax stated in a closure notice is considered to be wrong, the person to whom the closure notice is addressed can appeal against the closure notice, and the figure if incorrect can be corrected by a statutory review decision of HMRC, or by the Tribunal. This is so, regardless of whether the figure in the closure notice is wrong (1) due to an error in HMRC’s substantive conclusions in the closure notice, or (2) due to a clerical or arithmetical error. There is no reason in principle for treating the latter kind of error differently to the former. (e) AKA’s appeal against the closure notice is therefore validly before the Tribunal. Entitlement to MDR 114. AKA relies on the same arguments as LPL in relation to the grant of planning permission. The Tribunal rejects those arguments for the same reasons given in paragraphs 89-97 above. 115. AKA also relies on the further considerations referred to in paragraphs 52-53 above. 116. As to the works undertaken by the Appellant on the land on the day of the EDT after the transaction for its purchase had been completed, the Tribunal finds that works undertaken on the property after the transaction was completed cannot have formed part of the subject matter of the transaction (within the meaning of paragraph 2(2) Schedule 6B FA 2003), even if they were performed on the very day of the EDT. 117. As to the bore holes that were present on the property on the EDT, these were the consequence of activities undertaken by AKA itself in advance of the EDT, albeit presumably with the permission of the seller. AKA’s activities in digging the bore holes are similar to the kinds of non-physical activities of a buyer referred to in paragraphs 87 and 96 above, in the sense that they are not something title to which the seller transferred to AKA as part of the subject matter of the transaction that is subject to the SDLT. The bore holes certainly cannot be characterized as the main subject matter of the property transaction between the seller and AKA. 118. The Tribunal therefore concludes that the main subject matter of the transaction did not include any interest in any “dwellings”. AKA is therefore not entitled to claim MDR in respect of the transaction. Applicability of the 3% higher rate in Schedule 4ZA 119. The closure notice concludes that the transaction for the acquisition of the land was subject to the 3% higher rates of SDLT in Schedule 4ZA FA 2003. The Appellant challenges this conclusion. However, one of the essential elements of the Appellant’s challenge is the proposition that the transaction is subject to MDR. Given that the Tribunal has found above that the transaction is not subject to MDR, there is no need to give further consideration to this aspect of AKA’s appeal. Other matters 120. The decision deals only with the specific issues that the parties have requested the Tribunal to address. 121. It may be that in light of this decision on these issues, there are other matters that need to be determined in order to calculate the final amount of SDLT due in both appeals. For the eventuality that there is any future dispute between the parties in relation to such additional matters, appropriate permission will be given to the parties to bring such additional matters back before the Tribunal for an additional decision. Conclusion 122. Neither Appellant is entitled to claim MDR in respect of the transactions to which these appeals relate. 123. If the parties are unable to agree on the consequences of this decision for either of the closure notices under appeal, either party is at liberty to request the Tribunal within 90 days of the date of release of this decision to determine the matter remaining in dispute. Right to apply for permission to appeal 124. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. DR CHRISTOPHER STAKER TRIBUNAL JUDGE RELEASE DATE: 07 JULY 2021