Court rules on application of 15% corporate stamp duty rate

When does the operation of a rental property bought by a company start to become a trade, and thus become liable for the higher rate of stamp duty? This is a question that the First-tier Tribunal has just mulled in the case of a property bought for almost £1m in 2015 by a company that works in the care sector. The company at the heart of this dispute, Consultus Care & Nursing (CCN), bought a £930,000 property in Tonbridge, Kent. CCN is a company that provides self-employed carers to people who need them, and processes payment. It also provides training courses for carers and has a house that it lets out to carers on a short-term basis while they attend courses. The property the company acquired was intended to be let to carers on a short-term basis. It was advertised as a family home but, before the purchase, CCN received permission to change its use from a dwelling to a temporary residence for residential carers. As a company CCN was liable for the higher, 15% rate of corporate stamp duty. However, CCN claimed exemption from this under a carve out in the legislation that exempts properties used a property rental businesses. They therefore paid stamp duty of £36,750. However, HMRC disputed this on two grounds. The first was that the property was not acquired exclusively as a property rental business. Rather, it was acquired to enhance CCN’s business of providing training courses. The second was that the way CCN was using the property did not qualify it as a rental property, but as a trade, because CCN provided the users of the rooms with breakfast and employed a cleaner. The case went to the tax chamber of the First-tier Tribunal before tribunal judge Jeanette Zaman. In her ruling, Zaman backed HMRC although she did not back all of HMRC’s argument. She stated in her ruling that to qualify for the reduction in stamp duty a property needs to be acquired “exclusively” for the use of qualify purpose. “It is not a main purpose test (which could be satisfied where there was more than one purpose and one of those could be said to be the main purpose),” she said in her ruling. “The express language requires that the only purpose of CCN is one of those specified (in this case for exploitation as a source of rents as a qualifying property rental business). “On the basis of the evidence, we have concluded that the directors of CCN had (at least) two purposes in acquiring the property. These were to obtain a better return on the company’s surplus funds than that which was available at the bank, with the rental income expected to be higher, and also to support the provision of training by the business by having cheap accommodation available for carers.” “Accordingly, and whilst acknowledging that the test may be perceived as harsh, this does not meet the “exclusively” requirement of paragraph 5(1) and CCN does not qualify for relief from the higher rate charge.” Zaman said that, as the property failed this test, it qualified for the full 15% tax rate and CCN was therefore liable to pay an extra £102,750 in additional tax. She said that she didn’t need to consider HMRC’s second ground, that the operation of the property had started over from being a rental business to a trade. However, she said she would address it in her ruling. “We are not convinced that the availability of breakfast and the provision of housekeeping services are such as to transform the use of the property, viewed on its own, into that of a trade,” Zaman said in the ruling. “The breakfast constitutes various items including tea, coffee, bread, cereal and milk being available in the kitchen to which carers can then help themselves. “It is not prepared for them by CCN or anyone on its behalf. As for the housekeeping services, we found that these involved the daily attendance of a housekeeper at the property who is responsible for cleaning the common areas and cleaning/changing linens in the rooms between occupants. “These are both entirely consistent with the letting of furnished rooms (as in Griffiths v Jackson) and the statutory definitions in issue of the carrying on of a property rental business and generating income from land.” However, Zaman ruled that, on balance, as well as looking at the rental property in isolation, it should also be looked at as part of CCN’s wider business. “In assessing whether the property is used in the course of a qualifying rental business we should also have regard to the other activities of CCN,” she wrote. “We note that CCN provides carers to clients in their own homes and provides training services to carers. We consider that the provision of accommodation at the property forms part of that same business activity and should properly be regarded as trading.” In summary: “CCN’s activities constitute a trade relating to the provision of carers and that the rents from the property form part of that trade. We do not consider on the facts before us that it is correct to say that CCN conducts both a trade relating to the provision of carers and a separate property rental business.” “We therefore conclude that CCN is not conducting a qualifying property rental business for the purposes of paragraph 5(1)(a) of Schedule 4A.” First-tier Tribunal, Tax Chamber. Consultus Care & Nursing Limited -and- the Commissioners for Her Majesty’s Revenue and Customs Tribunal: Judge Jeanette Zaman, Ian Abrams