Transferring part of garden land with planning permission to own limited company - Stamp Duty Calcs

chinswee99

Please can i have some advice on the above? Basically we are in the process of transferring part of our rear garden that with planning permission for a new dwell to our limited company as a gift. The planning permission was granted in September 2019 and the transfer application was submitted in March 2020. We have been told by our solicitor lately that the transfer cannot be complete as we are owing the tax office £5k worth of stamp duty. HMRC have used £150k of the land value to work out this £5k tax. Are they correct to use £150k? Or should they be using the land value without planning permission? The land with no planning permission is worth circa £30k max but with planning is circa £100k as advised by local surveyor. HMRC assessment of £150k seems rather high. Much appreciated if I can get some advice on this issue. Thanks in advance. The below is the email from our solicitor if anyone is interested to have a read:

Dear Derek, 

I have finally heard from the Land Registry about the application and they have raised a requisition which I am sorry to say causes an issue and alerts me to something that I simply had not considered.  I will apologise for that here and now.

The land registry have pointed out that because you are transferring the land to a Company that you are a Director of, the transaction is caught by the provisions of Section 53 of The Finance Act 2003 which says even though the transfer deed between you and the company says that the company has not paid you any money for the land, for the purposes of Stamp Duty Land Tax the value of the land being transferred to the company is subject to SDLT at the applicable rates.

I am afraid that this means that on completion of the transfer, not only should we have  reported the transfer to the stamp office, but SDLT of £5,000.00 was, and is, payable.  Unfortunately, HMRC treat Garden land as still falling within the definition of a ‘residential’ transaction and all companies have to pay the higher rates of SDLT, being 3% above the rates that would otherwise be payable.  As at the date of the transfer of the land, 23rd March 2020, SDLT on consideration of £150,000.00 for a company was 3% of the first £125,000.00 and then 5% of the balance, or in other words £3,750.00 plus £1,250.00 = £5,000.00.  In addition, there is also going to be a fixed penalty of £200.00 for late filing of the stamp duty return.

Until I am able to provide evidence to the land registry that a Stamp Duty return has been filed, and the duty paid, they will not register the transfer.  Accordingly, in order to move forwards can you please do the following:-

1.       Send me the sum of £5,200.00 to the attached account; and

2.       Provide me with C & M Property Developments Limited’s VAT registration number (if it has one) or Unique Tax Reference number.

As soon as I have the above from you, I will lodge the stamp duty return, pay the tax and then provide the necessary documentation to the land registry to enable them to proceed with the application.

Finally, I once again apologise for my oversight.

Kind regards,

xxx

AdrianC

(You might like to edit the company name out...)

The only thing you can really argue with there is the £150k valuation.

An SDLT return was definitely due.
https://www.legislation.gov.uk/ukpga/2003/14/section/53

The applicable value is the open-market value of the land at the date of the transfer. Given the planning permission was granted six months before the transfer, then - yes - it's the value with PP that's used.
You say £100k, they say £150k. Can you convince them your figure is more accurate than theirs?

SDLT_Geek

chinswee99 said:

Please can i have some advice on the above? Basically we are in the process of transferring part of our rear garden that with planning permission for a new dwell to our limited company as a gift. 

SDLT is due on the market value of the property at the time of the transfer to the company.

The planning permission was granted in September 2019 and the transfer application was submitted in March 2020. We have been told by our solicitor lately that the transfer cannot be complete as we are owing the tax office £5k worth of stamp duty. HMRC have used £150k of the land value to work out this £5k tax. Are they correct to use £150k? 

Yes, if £150,000 is the value of the land when the transfer was dated (23 March 2020 it says below).

Or should they be using the land value without planning permission? The land with no planning permission is worth circa £30k max but with planning is circa £100k as advised by local surveyor. HMRC assessment of £150k seems rather high. Much appreciated if I can get some advice on this issue. Thanks in advance. The below is the email from our solicitor if anyone is interested to have a read:

Dear Derek, 

I have finally heard from the Land Registry about the application and they have raised a requisition which I am sorry to say causes an issue and alerts me to something that I simply had not considered.  I will apologise for that here and now.

The land registry have pointed out that because you are transferring the land to a Company that you are a Director of, the transaction is caught by the provisions of Section 53 of The Finance Act 2003 which says even though the transfer deed between you and the company says that the company has not paid you any money for the land, for the purposes of Stamp Duty Land Tax the value of the land being transferred to the company is subject to SDLT at the applicable rates.

Correct

I am afraid that this means that on completion of the transfer, not only should we have  reported the transfer to the stamp office, but SDLT of £5,000.00 was, and is, payable.  Unfortunately, HMRC treat Garden land as still falling within the definition of a ‘residential’ transaction

Correct so far, it is "residential", if at the time of the transfer it was part of your garden.

 and all companies have to pay the higher rates of SDLT, being 3% above the rates that would otherwise be payable.  

Correct for "dwellings", but see note below.

As at the date of the transfer of the land, 23rd March 2020, SDLT on consideration of £150,000.00 for a company was 3% of the first £125,000.00 and then 5% of the balance, or in other words £3,750.00 plus £1,250.00 = £5,000.00.  

See below

In addition, there is also going to be a fixed penalty of £200.00 for late filing of the stamp duty return.

Correct, but it could be higher once 12 months from the filing date has past, so you should get this resolved soon.

Until I am able to provide evidence to the land registry that a Stamp Duty return has been filed, and the duty paid, they will not register the transfer.  Accordingly, in order to move forwards can you please do the following:-

1.       Send me the sum of £5,200.00 to the attached account; and

2.       Provide me with xxxxxxxxxxxxxxxxxxxx Limited’s VAT registration number (if it has one) or Unique Tax Reference number.

As soon as I have the above from you, I will lodge the stamp duty return, pay the tax and then provide the necessary documentation to the land registry to enable them to proceed with the application.

Finally, I once again apologise for my oversight.

Kind regards,

xxx

The salvation here is likely to be that the 3% surcharge only applies to "dwellings".  If at the date of the transfer, the land was garden land, with no building in the course of construction, then it is "residential property" without being a dwelling.  The 3% surcharge would not apply.  The "holiday" had not started on 23.03.2020, so the SDLT on £150,000 at residential, non surcharged rates is £500, not £5,000.

There are some who argue that there is a "dwelling" for SDLT purposes where bare land is acquired with planning permission.  I disagree with that analysis, as do HMRC.

[Deleted User]

I don't understand why you think HMRC has valued the land.
You need to ask your solicitor where the £150000 value/consideration figure comes from.
After transfer the land is an asset in the company's balance sheet and should reflect the SDLT value/consideration.

SDLT_Geek

Haldane said:

I don't understand why you think HMRC has valued the land.
You need to ask your solicitor where the £150000 value/consideration figure comes from.
After transfer the land is an asset in the company's balance sheet and should reflect the SDLT value/consideration.

The Land Registry form AP1 asks for a value as part of the registration process.  The figure of £150,000 is probably lifted from there.  Perhaps OP supplied the figure at the time of the purchase for the solicitor to use!

SDLT_Geek

I wonder if @chinswee99 has seen the answers to the posts.  @chinswee99 was on line here on Thursday, but has made no comment on the responses.

stig

Agree with SDLTGeek, the company has acquired residential land but not a “dwelling” so it should pay SDLT at the standard rate without the 3% surcharge.  Point out to your solicitor that the Higher Rate for Additional DWELLINGS isn’t due for this transaction because........there is no dwelling acquired. 

Stig

theartfullodger

This one??
https://find-and-update.company-information.service.gov.uk/company/04603422/officers

unforeseen

There are some who argue that there is a "dwelling" for SDLT purposes where bare land is acquired with planning permission. I disagree with that analysis, as do HMRC.

HMRC

 a “dwelling” means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use.

I see the argument that having planning permission means that it is in the process of being constructed as PP must be an initial step of the construction. 

SDLT_Geek

unforeseen said:

There are some who argue that there is a "dwelling" for SDLT purposes where bare land is acquired with planning permission. I disagree with that analysis, as do HMRC.

HMRC

 a “dwelling” means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use.

I see the argument that having planning permission means that it is in the process of being constructed as PP must be an initial step of the construction. 

I see the efforts involved in obtaining planning permission as preliminary steps before works of construction start.

The matter was debated before the First Tier Tribunal in the Troy Homes v HMRC case, the the Tribunal decided the case on other grounds.  It is understood that HMRC are taking other cases to establish the point.

MobileSaver

SDLT_Geek said:

unforeseen said:

 a “dwelling” means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use.
I see the argument that having planning permission means that it is in the process of being constructed as PP must be an initial step of the construction. 

I see the efforts involved in obtaining planning permission as preliminary steps before works of construction start.

Clearly the definition can be read in two ways but I agree with @unforeseen in this particular case and can see HMRC winning this one.

The key phrase is as highlighted "in the process"  and I am finding it difficult to see how obtaining planning permission would not be seen as the beginning of the process to construct a dwelling.

Of course that then opens a can of worms; is simply applying for planning permission also part of the process regardless of whether it is subsequently approved or refused?