In Investment and Securities Trust Limited v HMRC [2025] UKUT 00331, the Upper Tribunal (UT) found that a company was entitled to Annual Tax on Enveloped Dwellings (ATED) relief as it held an option over a property exclusively for the purpose of developing and reselling that property, in the course of its property development trade.
Ms Voice, a director of Investment and Securities Trust Limited (IST), owned a property that was estimated to be worth £13.5m following redevelopment.
- IST agreed to purchase the property, but could not raise the full amount of cash.
- Under an option agreement, IST agreed to purchase the property for £9.3m, paying £4.65m for the grant of the option. This £4.65m would form part of the purchase price on exercise of the option.
- After acquiring the option, IST decided not to develop the property, and it was eventually sold for £6.9m.
- The company claimed higher rate Stamp Duty Land Tax (SDLT) relief and Annual Tax on Enveloped Dwellings (ATED) relief on the purchase of the option on the basis that it had acquired the option to redevelop the property.
- HMRC enquired into the purchase and raised assessments on the basis that it was ineligible for relief and was liable to additional SDLT of £372,000, plus interest of £35,985. ATED totalling £108,616 was also charged, plus interest of £13,002.
- The company appealed to the First Tier Tribunal (FTT).
On appeal, the FTT agreed with HMRC that Higher rate relief for SDLT and ATED depended on the property being ‘acquired exclusively’ for one or more purposes, including development or redevelopment and resale in the course of a property development trade.
- Based on the evidence, it was found that IST had acquired the option for the following reasons:
- For the purposes of addressing Ms Voice’s pressing need for funds.
- To prevent the sale of the property to a third party.
- To provide IST with time to raise the funds to acquire and develop the property.
- The FTT concluded that IST did not acquire or hold an interest in the property for the exclusive purpose of its property development trade.
- In terms of the occupation of the property by a connected party, Ms Voice, the FTT also found that although the option agreement provided that she must vacate the property, in her capacity at that time as a freeholder, she was still able to live there, which she did for a short period before she found another home.
The company's appeal was dismissed.
IST appealed to the Upper Tribunal (UT), arguing that the FTT had misinterpreted the statutory tests.
The UT:
- Upheld the FTT's decision on SDLT, agreeing that the statutory test under paragraph 5(1)(b) of Schedule 4A FA 2003 requires the chargeable interest to be acquired exclusively for development or redevelopment of land and resale.
- Found that IST had three purposes in acquiring the option:
- Addressing Ms Voice's pressing need for funds.
- Preventing a sale to a third party.
- Allowing time to raise development funds.
- While the latter two purposes could fall within the scope of a property development trade, the first did not.
- Concluded that the acquisition was not exclusively for a qualifying purpose: SDLT relief was denied.
- Allowed the appeal in respect of ATED. Under section 138 FA 2013, the test was whether the interest was held exclusively for development and resale.
- The UT held that once the option was granted, Ms Voice's financial need had been addressed, and the ongoing holding of the option was solely for development purposes.
- The FTT had erred in law by conflating the purposes of acquiring and of holding the interest.
- As such, IST was entitled to ATED relief for the relevant periods.
The UT dismissed the SDLT appeal but allowed the ATED appeal.
Useful guides on this topic
Annual Tax on Enveloped Dwellings (ATED)
What is the Annual Tax on Enveloped Dwellings (ATED)? Who does ATED apply to? What relief is available and how is it claimed? What are the ATED return filing dates?
SDLT: Residential property higher rates
A guide to the Stamp Duty Land Tax (SDLT) higher rate charge on residential property, when it applies and what reliefs are available to exempt buyers from the charge.
SDLT: At a glance, Stamp Duty Land Tax, rates & allowances
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?
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Investment and Securities Trust Limited v HMRC [2025] UKUT 00331