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SDLT 15% rate: when is good occupation, bad occupation?

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FA 2013 Sch 40 introduces some additional reliefs to the 15% rate of SDLT. It does so by introducing additional paragraphs into FA 2003 Sch 4A. Broadly speaking, these reliefs are dealt with under separate paragraphs in that schedule, and comprise:

  • exemption for property rental businesses, development or redevelopment and resale, resale as part of property development, and resale as trading stock (para 5);
  • making a dwelling available to the public (para 5B);
  • financial institutions acquiring dwellings in the course of lending (para 5C);
  • dwellings for occupation by certain employees (para 5D); and
  • farmhouses (para 5F).

Since SDLT is charged by reference to the circumstances that exist at the effective date of a land transaction (completion or substantial performance), there are clawback provisions within Sch 4A if the qualifying criteria which relieves a purchaser under the foregoing paragraphs does not subsist for (broadly speaking) three continuous years after the effective date.

But what is clear is that the use or occupation which qualifies a purchaser for relief, under whichever paragraph, seem to be good use or occupation.

So you would expect that provided such good use or occupation subsists for three years post the effective date, it doesn’t matter precisely which paragraph the relief falls into. So if, for example, relief is claimed under para 5 on the acquisition of a property (on the basis it is going to be used for a qualifying rental business), but within that three-year period the property is actually used for a trade involving making a dwelling available to the public (para 5B), or as a qualifying farmhouse (para 5F), there will be no clawback of relief. Both the initial rental use and the subsequent use comprises good use.

Nothing could be further from the truth.

Whether this is intended, or is simply a glitch which arises because of the way in which the legislation has been drafted is unclear. But the legislation provides for a clawback unless the dwelling is used or occupied for the paragraph specific purposes mentioned above. If the use or occupation falls outside those criteria within the relevant three-year period, there is a clawback. It is irrelevant if the reason for those criteria not subsisting is because the property is used or occupied for an alternative good use or occupation. So in the above example, use or occupation, which would otherwise be good use under para 5B or 5F, is bad use if the relief originally claimed is under another paragraph (e.g. para 5 in my example).