In a recent Upper Tribunal (UT) ruling, Investment and Securities Trust Limited v HMRC, the UT determined that a company was entitled to relief from the Annual Tax on Enveloped Dwellings (ATED). The company held an option over a property solely for the purpose of developing and reselling it as part of its property development trade.

The First Tier Tribunal (FTT) had previously decided that neither ATED relief nor higher rate Stamp Duty Land Tax (SDLT) relief applied in relation to the property option.

The company had acquired the option for three purposes:

  1. To address the director/shareholder’s urgent need for funds.

  2. To prevent the sale of the property to a third party.

  3. To allow time to raise finance for development.

The UT upheld the FTT’s view that relief from the higher SDLT rates was not available, as the relevant legislation requires the chargeable interest to be acquired exclusively for the purpose of developing or redeveloping land and subsequently reselling it. This condition was not satisfied.

However, the UT found that the FTT had misinterpreted the statutory wording in relation to ATED relief. The correct test was whether the interest was held exclusively for development and resale. The Tribunal concluded that once the company had acquired the option, purposes (1) and (2) had already been fulfilled, and from that point onwards, the sole purpose for holding the option was to develop the property.

Accordingly, the UT allowed the appeal in respect of ATED relief but dismissed the appeal for higher rate SDLT relief.