Goode Cuisine Co Ltd v Commissioners of HM Revenue and Customs

Stamp duty land tax – Higher rate – High value residential transactions – Appellant appealing against closure notice issued by respondent commissioners requiring appellant to pay additional stamp duty land tax (SDLT) in respect of purchase of residential property – Whether tax relief available for trades involving making of dwelling available to public – Whether dwelling to be converted into bed and breakfast accommodation qualifying for relief – Appeal dismissed The appellant purchased a residential property named Manor Lodge, Church Street, Thornham, Hunstanton, Norfolk for £645,000 in late 2015. The effective date of the purchase of the property for stamp duty land tax (SDLT) purposes was 20 October 2015. On the same day, the appellant filed an electronic SDLT return in relation to the acquisition of the property in which it claimed relief under para 5B of Schedule 4A to the Finance Act 2003 from the higher rate of 15% that was applicable under paragraph 3 of Schedule 4A to “high value residential transactions”. At the time of the acquisition, the appellant intended to convert the property into additional rooms to increase the capacity of its bed and breakfast business, which was carried on as part of its business running the Orange Tree public house. To that end, an application was made to the local authority to change the use of the property from a single dwelling to “seven commercial letting rooms”. The appellant considered that its proposed use of the property to derive further income from its bed and breakfast business meant that it had the intention of exploiting the property “as a source of income in the course of a qualifying trade” for the purposes of para 5B(2) of Schedule 4A. Therefore, it met the conditions for relief in para 5B for trades involving making a dwelling available to the public. The respondent commissioners issued a closure notice, which was subsequently upheld on review by the respondents, requiring the appellant to pay additional SDLT of £74,500 in respect of the purchase. The appellant appealed. The issue was whether the appellant was entitled to claim the relief or whether the conditions necessary for the relief to apply had not been satisfied so that the appellant had to pay the additional SDLT necessary to mean that, in aggregate, it would have paid a 15% charge to SDLT on the purchase price. Held: The appeal was dismissed. (1) It was clear from the evidence that the appellant intended to carry on a bed and breakfast business at the property once the necessary conversion work had been completed. That meant that the property was, at the effective date, intended to be used for the purposes of “a hotel, inn or similar establishment” as described in section 116(3)(f) of the 2003 Act once the necessary conversion work had been completed. As a result, pursuant to para 7(7) and (8) of Schedule 4A, once the necessary conversion work had been completed, the property was going to cease to be a “dwelling” for the purposes of Schedule 4A. The terms of section 116(3) were to be read into para 7 of Schedule 4A. The fact that the bed and breakfast business was only a small part of the appellant’s overall business did not prevent the property from falling within section 116(3). Leaving aside the question of whether a public house, in and of itself, and even if it included no provision for accommodation, could properly be described as an “inn or similar establishment”, on the facts in this case, where the bed and breakfast services were part of the business carried on by the appellant and where the property was to be used in its entirety to provide part of those bed and breakfast services, the only reasonable conclusion was that the property was going to be used for the purposes of “a hotel or inn or similar establishment” and therefore fell within the ambit of section 116(3). It followed that, although the property was clearly a “dwelling” at the effective date of the transaction and therefore potentially within the ambit of the higher charge in para 3 of Schedule 4A, it was not going to be a “dwelling” by the time that members of the public were invited to “make use of, stay in or otherwise enjoy” the property following the conversion and it began to generate income for the appellant in the course of the appellant’s business. (2) The use of the future tense in para 5B(2)(a) of Schedule 4A (the use of the phrase “the intention that it will be exploited”) made it clear that, although both the charge under para 3 of Schedule 4A and the availability of the relief under para 5B of Schedule 4A depended on whether the relevant property was a “dwelling” on the effective date and, in the case of the relief, the purchaser’s intention on the effective date which necessarily related to a future course of action, namely the future exploitation of the relevant property as a source of income in the course of a “qualifying trade”. From the express language of the statute, on balance, when the provision was properly construed, relief in para 5B depended on the continuing status of the property as a “dwelling” once the property was made available to the public. Whilst the provision could have been drafted to make that requirement clearer, the fact that para 5 of Schedule 4A was amended by the Finance Act 2016 to provide for relief in a wider range of circumstances (including the present) strongly suggested that, at least in 2016 when the amending legislation was enacted, Parliament believed that the relief in para 5B was confined to properties that continued to be dwellings when they were made available to the public in the course of a trade. In all the circumstances, the relief set out in para 5B of Schedule 4A was not available to the appellant. Ms Carol Bun (of Birketts LLP, Ipswich) appeared for the appellant; Mrs Chris Cowan and Mr A Sayers (officers of HM Revenue and Customs) appeared for the respondents. Eileen O’Grady, barrister Click here to read a transcript of Goode Cuisine Co Ltd v Commissioners of HM Revenue and Customs