Investment and Securities Trust Limited v The Commissioners for HMRC

For SDLT relief under paragraph 5 of Schedule 4A to the Finance Act 2003, the relevant question is the purpose for which the chargeable interest was acquired. The inquiry is not confined to the intended use of the underlying land. The court may consider the transaction’s structure, terms and price as evidence of that purpose. A purpose outside the property development trade defeats the exclusive-purpose condition. For ATED relief under section 138 of the Finance Act 2013, the question is the purpose for which the interest is held on each relevant day. The acquisition purpose is evidential only, and the company’s purpose may change during ownership.

The appellant acquired an option over a high-value residential property. It intended to redevelop and resell the property in the course of its property development trade, but the option was granted on terms which enabled the vendor, a connected person, to obtain substantial funds. The FTT held that the option had been acquired for several purposes, including addressing the vendor’s pressing need for funds, and denied SDLT and ATED relief.

The appellant appealed on the construction and application of the exclusive-purpose conditions. HMRC cross-appealed on an alternative occupation-related purpose. The Upper Tribunal considered whether the FTT had identified the correct statutory questions for SDLT and ATED.

1. SDLT. The appeal against the SDLT assessment was dismissed. Under paragraph 5(1)(b) of Schedule 4A to the Finance Act 2003, the chargeable interest acquired was the option. The statutory question was the purpose for which that interest was acquired, interpreted in the context of the development or redevelopment of the underlying land for resale. The purpose was not limited to the intended use of the land.
2. All the background facts and the context in which the interest was acquired could be considered. The price paid, the unusual structure of the option agreement and the provision of funds to the connected vendor were relevant evidence. Preventing a third-party sale and obtaining time to raise development finance could fall within the ambit of a property development trade. However, the FTT was entitled to find that addressing the vendor’s pressing need for funds was an additional purpose outside that trade. That purpose meant that the interest had not been acquired exclusively for the qualifying purpose.
3. The FTT therefore reached the correct result on SDLT, although its reasoning was partly erroneous in treating the two commercial purposes as defeating exclusivity.
4. ATED. The appeal against the ATED assessments was allowed. Section 138(1)(b) of the Finance Act 2013 required the tribunal to identify the purpose for which the interest was held on each relevant day. The purpose of acquisition was relevant evidence but was not determinative. A company’s purpose could change after acquisition, and the property could move into and out of the charge during ownership.
5. The FTT had wrongly treated the purpose of holding the option as inextricably linked to the purpose of acquiring it. After the option was granted, the vendor’s pressing need for funds had been satisfied and could not remain a purpose of holding the option. The remaining purposes fell within the appellant’s property development trade. The FTT’s decision was set aside so far as it related to ATED and was remade in the appellant’s favour. HMRC’s cross-appeal concerning occupation was not determined because it was unnecessary.

• Upper Tribunal (Tax and Chancery Chamber): allowed the appeal against the ATED assessments, dismissed the appeal against the SDLT assessment, and declined to determine HMRC’s cross-appeal.
• First-tier Tribunal (Tax Chamber): held the appellant liable to higher-rate SDLT and ATED. The decision was released on 18 March 2024.