In Hopscotch Limited v HMRC [2019] TC07127 the FTT found that the redevelopment of a single house in order to sell it was not a property development trade; no ATED relief was due.
The Annual Tax on Enveloped Dwellings (ATED) introduced from 1 April 2013, is an annual charge on UK dwellings with a value of £500,000 or more and held by a non-natural person such as a company.
- Reliefs apply where property is being redeveloped or held as stock within a property development trade where:
- the interest is held exclusively for the purpose of developing and reselling the land in the course of the trade.
- “Property development trade” means a trade that:
- consists of or includes buying and developing for resale residential or non-residential property, and
- is run on a commercial basis and with a view to profit.
- References to development include redevelopment.
- For relief to apply the property development trade must be carried on throughout the ATED chargeable period.
Hopscotch Limited was a BVI company, which had owned a house in Kensington for over 20 years.
- Between 1993 and 2007 it was occupied by persons permitted to do so by the company.
- It was put on the market in 2011 but failed to sell. In 2014 the directors decided to redevelop the property. It was put back on the market for £15.9m in October 2017.
- As at the hearing date the house had still not been sold.
- ATED returns were submitted and ATED paid for the 3 years ended 31 March 2016. For the 2 years to 31 March 2018 relief was claimed on the basis that the company was carrying on a property development trade and the property had been moved from capital account to stock.
- Following enquiry, HMRC denied relief andHopscotch appealed. The parties did agree that a redevelopment of the property had taken place.
The FTT agreed it was possible for the redevelopment of one property to amount to a venture in the nature of trade and for a person holding a property as an investment to decide that going forward it would hold the property for a trading purpose, appropriating it from capital account to trading account, but found that this had not happened as Hopscotch had not carried on a property development trade.
- The transaction did not relate to a trade which the company otherwise carried on, and it was not carried through in a way typical of a trade of property development:
- When the directors decided to redevelop the property and at subsequent board meetings, no budget was set, no anticipated profit was discussed, and no business plan or trading accounts were produced regarding the redevelopment.
- Initial estimates of the cost of redevelopment were £2.75m, final costs were around £1m. This unexplained discrepancy highlighted the absence of the level of financial planning which the tribunal would have regarded as distinguishing a trade from the taking of steps to maximise the value of an investment held on capital account.
The appeal was dismissed.
Update
The taxpayer appealed to the Upper Tribunal. Read the summary here.
Links to our guides:
Annual Tax on Enveloped Dwellings (ATED)
Profits from dealing in or developing UK land
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