In Zyrieda Denning, MH Hants Limited & MP Hants Limited v HMRC [2021] UKUT76 (LC), the Upper Tribunal (UT) determined that the market value of a leasehold interest, for Stamp Duty Land Tax (SDLT) in two care homes was substantially less than that calculated under the RICS principles. The RICS valuation included separate goodwill which was not chargeable to SDLT.

  • Dr Denning Incorporated her care home business by granting leases to two new companies for a term of 5 years at an annual rent (without review) of £225,000 for Manor Place and £175,000 for Maple House.
  • No premium was payable  and Dr Denning retained the freehold interest in both homes.
  • Under RICS guidance the leasehold interests were valued at a combined £1.2m.
  • Deeds of assignment of the goodwill of the businesses from Dr Denning to MPL and MHL were for consideration of £1,125,000 and £675,000 respectively, i.e. a total of £1.8m.

  • HMRC raised Stamp Duty Land Tax (SDLT) Discovery assessments in respect of the acquisition of the leases contending that the capital value of 'the trading potential' (i.e. goodwill) of the leasehold interest was inherent in the property and this meant that goodwill was inseparable from the value of the leases.

  • Dr Denning Appealed against the assessments.

The UT found the value of the leasehold interest calculated under the RICS guidance only represented goodwill and not any additional premium on the lease. There was no premium on the lease that could be subject to SDLT as:

  • The law recognises goodwill as a separate asset distinct from the land itself, so a valuation made on the basis that goodwill was part of the land would be wrong in law.
  • The valuation of an interest in a trade-related property should reflect the trading potential inherent in the property for a hypothetical owner of reasonable efficiency.
  • As the rent between parties was agreed to be at market value, it must fully reflect the trading potential available to the tenant. If this was not the case it would not represent the market rent.
  • The capital value of the leasehold interest must therefore represent something other than the land.
  • The trading potential of the fully equipped and operational care homes was not all attributed to and reflected in the value of the land, it included goodwill.
  • The valuations under RICS principles must therefore have included an element of transferable goodwill that does not relate solely to the property, the capital value of the leasehold interest reflected that element of goodwill.

The UT determined that the value of the leasehold interest for both care homes was nil.

Useful guides on this topic

Goodwill: trade-related properties
What are the tax and accounting issues when valuing goodwill in connection with the purchase or sale of a trade-related property? What are HMRC's views? What does case law tell us?

Incorporating an existing business
This guide explores the main issues when a sole trader's business is incorporated into a company.

SDLT: at a glance
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

How to appeal an HMRC decision 
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Zyrieda Denning, MH Hants Limited & MP Hants Limited v HMRC [2021] UKUT76 (LC)


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