In Forest Commercial Services Ltd v HMRC [2020] TC7944 a company narrowly escaped a £20k tax penalty when it inaccurately claimed relief from the Stamp Duty Land Tax (SDLT) 15% higher rate charge on a dwelling it developed that was subsequently occupied by its owners.

  • The company 'FCS' was a property developer, it purchased a bungalow, ‘Holwell’ speculatively for development at a cost of £525,000.
  • At the time of the acquisition, its directors claimed they had no intention of occupying any dwelling house built there.
  • A Stamp Duty Land Tax (SDLT) return claiming relief from the Residential higher rate of 15% SDLT was filed in June 2016.
  • At the time of the purchase, the directors had been building another property for themselves. This was not ready on time and they moved into Holwell in July 2016.
  • HMRC investigated the transaction and denied higher rate relief: the property was being occupied by a connected person. The company failed to qualify for the relief due to owner-occupation within three years of the purchase. This resulted in an extra SDLT bill of £78,750.
  • HMRC also charged tax geared Penalties for Error or Mistake in a tax return.
  • The company accepted the extra SDLT charge but Appealed against the penalty assessment.

The First Tier Tribunal considered the evidence:

  • There was no legal uncertainty or complexity which had caused the appellant to file an inaccurate return. It was ‘an action taken consciously’ by the appellant and therefore a deliberate action.
  • A planning consultant had stated in a planning application that 'garages were a specific part of the client’s original brief as they have several cars which they need to store securely.' This statement had caused HMRC to question the appellant's motives on purchase.
  • On 23 May 2017, a director of the company chose to deny that anyone had lived in the property, when in fact he and his wife had lived there for four months between July and November 2016.
  • The directors had only engaged an architect and commenced plans to develop the property in 2017.

The FTT concluded that:

  • The likely scenario was that Mr Smith purchased Holwell via FCS on a speculative basis and with an open mind, to develop it in one way or another and submitted an SDLT return quickly after completion. Their decision to occupy Holwell was taken after that.
  • It was for HMRC to prove, even on a balance of probabilities, that occupying the old or new Holwell was Mr Smith’s real and true intention from the outset. This is obviously very difficult.
  • On an objective basis, in the absence of unequivocal evidence to the contrary, the FTT did not conclude that HMRC have shown any probable intention on the part of Mr Smith to occupy Holwell at the time the SDLT return was submitted.

The SDLT return was therefore correct. There was no inaccuracy and so no penalty is payable.

Links to our guides

SDLT higher rates
What Stamp Duty Land Tax (SDLT) rate applies for the purchase of a second home? What is the SDLT higher rate? Are there any reliefs from the SDLT higher rate?

Penalties: Errors in Returns and Documents
What penalties apply if you make an error or mistake? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

Appeals: How to appeal a tax penalty?
How to appeal a tax penalty. What are your rights of appeal if HM Revenue & Customs (HMRC) have assessed you for a tax penalty?

External links

Forest Commercial Services Ltd v HMRC [2020] TC7944