The case of Patel v Revenue and Customs Commissioners [2025] concerned an appeal by a taxpayer against HM Revenue & Customs (HMRC) decision to demand an additional £101,250 Stamp Duty Land Tax (SDLT) owing to an incorrect claim by the taxpayer that his newly acquired property was non-residential.
In May 2021 the taxpayer purchased a partly completed development with planning permission to convert two properties into one five-bedroom house (the Property). The price paid for the Property was £6,679,616 and the taxpayer paid SDLT of £799,422 on the basis that it was residential and multiple dwellings relief (MDR) applied.
In October 2021, the taxpayer changed his mind as to the characterisation of the Property and made a claim for a repayment of £475,961.20 SDLT, on the basis he had in fact purchased non-residential property. HMRC opened an enquiry into the repayment claim and discovered that MDR did not apply to the purchase and should not have been claimed. The taxpayer accepted this but maintained that the Property was, for SDLT purposes, non-residential and so the MDR position was irrelevant. HMRC refused to characterise the Property as anything other than residential and so it not only dismissed the repayment claim, it issued an assessment for an additional £101,250 of SDLT which it said should have been paid upfront but for the erroneous MDR claim.
HMRC's position was that Property was in the process of being constructed or adapted for use as a dwelling when the taxpayer acquired it. Some works had been undertaken on it prior to the taxpayer's acquisition of it and these included the creation of an access doorway between the two properties so that there were no longer two separate buildings. Further works were required to complete the development when the taxpayer acquired it but these were not in progress at the time of purchase.
The taxpayer argued that the Property was not in the process of being constructed or adapted for use as a dwelling, because the Property which would ultimately be constructed was not a “dwelling” for SDLT purposes.
The planning permission obtained by the former owner of the Property prohibited occupation of it until another, unrelated property, also owned by the former owner had been practically completed in accordance with the planning permission obtained in respect of that other property (the Planning Restriction). The taxpayer was aware of this when he acquired the Property and understood the risk of buying it with this restriction in place.
The parties agreed that only issue before the First-tier Tribunal was whether the Property was or was non-residential for SDLT purposes when the taxpayer acquired it.
The SDLT legislation provides that 'residential property' includes a building that is used or suitable for use as a dwelling or is in the process of being constructed or adapted for such use.
On the basis that a finished building did not exist when the taxpayer acquired the Property, the tribunal took the view that it needed to determine whether the finished building completed in accordance with the applicable planning permission would be suitable for use as a dwelling. As expected, it took a multi-factorial approach to this issue. It considered the previous use of the Property, the physical manifestation of construction works at the date the Property was acquired, the Planning Restriction, the fact that the Property could not be occupied when acquired due to the unfinished construction works and the suitability for use of the Property as a dwelling when completed.
Counsel for the taxpayer disagreed with this approach and thought that the Planning Restriction should be determinative of the issue. His position was that this restriction precluded the use of the Property as a dwelling and therefore, the property must be non-residential. The tribunal rejected this and pointed out although the restriction imposed a prohibition on occupation, this was not a permanent bar on occupation and did not affect the essential characteristics of the Property as a dwelling once the development works had been completed.
Having given due consideration to the Planning Restriction and the other issues required of a multi-factorial analysis, the tribunal concluded that the Property would undoubtedly be suitable for use as a family home once developed and did therefore fall with the definition of residential property.
HMRCs assessment for the additional SDLT was upheld.
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