Apartment reservation agreements didn't reduce SDLT

In Landmaster Investment Limited & Anor v HMRC [2023] TC08919, the First Tier Tribunal (FTT) found that reservation agreements, relating to the purchase of new build apartments, were not options or rights of pre-emption. The residential rates of Stamp Duty Land Tax (SDLT) applied.

• Potential purchasers of newly built Residential properties entered into ‘reservation agreements’ with the vendor, paying 0.2% to 0.3% of the property’s purchase price to express the wish to purchase a specified apartment.
  • In one case the apartment had already been completed at the time that the reservation agreement was signed. In another, it had not.
• The purchasers subsequently acquired 999-year Leases to the apartments they had reserved, and submitted Stamp Duty Land Tax (SDLT) returns charging SDLT at the Residential rates.
• Each purchaser’s agent subsequently submitted an amendment to the SDLT returns charging SDLT on the transactions at the Non-residential rates, resulting in a lower amount of tax.
• These amendments were made on the basis that:
  • The reservation agreement was an ‘option’ and/or ‘right of pre-emption’ within the meaning of s.46(1) Finance Act 2003.
  • The acquisition of the option and/or right of pre-emption was:
    • A separate land transaction, chargeable at the non-residential rates of SDLT, as it did not meet the definition of residential property.
    • A Linked transaction with the later acquisition of the 999-year lease.
  • When taken together, the linked transactions were chargeable at the mixed SDLT rates, being both residential and non-residential.
• Following an enquiry, HMRC issued closure notices on the basis that SDLT was chargeable at the residential rates. The taxpayers appealed to the First Tier Tribunal (FTT).

The FTT found that:

• The reservation agreements were not options or rights of pre-emption.
  • The reservation agreements imposed no legal obligation on the vendor to sell the apartment to the prospective purchaser, merely to refrain from negotiating with third parties during the reservation period.
  • The reservation agreements did not create an estate, interest, right or power in or over land, or give rise to an obligation, restriction or condition affecting the value of any such estate, interest, right or power.
  • The prospective purchaser’s rights under the reservation agreements were not chargeable interests. This meant that entry into the reservation agreements was not a land transaction.
• As entering into the reservation agreements was not a land transaction, it could not be a linked transaction with the acquisition of the 999-year leases.
• Even if the reservation agreements had been options or rights of pre-emption, the residential rate of SDLT would have applied in any case.

The appeal was dismissed. 

Useful guides on this topic

SDLT: Stamp Duty Land Tax, start here
What is SDLT? What are the SDLT rates? What is exempt from SDLT? What reliefs are available? When are returns due? When can you amend a return?

SDLT: Residential property & dwellings
What is residential property for Stamp Duty Land Tax (SDLT)? What tax rate applies? What garden and grounds are subject to higher rates of SDLT?

SDLT: Linked transactions
What are linked transactions? When do the linked transaction rules apply for SDLT? How do I calculate SDLT on a linked transaction?

SDLT: Leases
What Stamp Duty Land Tax (SDLT) rates do I pay on leases? When do I notify HMRC?

SDLT: At a glance, Stamp Duty Land Tax, rates & allowances
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?

External link

Landmaster Investment Limited & Anor v HMRC [2023] TC08919