The additional rate of Stamp Duty Land Tax (SDLT) is payable on purchases of ‘additional dwellings’ such as buy-to-let properties.

A recent case dealt with the SDLT implications of the 2015 purchase of a house which the purchaser (a company) intended to use for a business purpose – in this case a bed and breakfast annexe to its existing business, which was a pub and B&B.

At the time the transaction took place, the higher rate of SDLT was not payable on the purchase of a commercial or mixed-use building or on a dwelling ‘made available to the public’ in the course of a trade.

The purchaser had already filed a planning application to turn the property into seven additional letting rooms, which in its view meant that it qualified for an exemption from the additional rate of SDLT that applies where a property is a dwelling which is to be used as a source of income for a qualifying trade.

HM Revenue and Customs (HMRC) disagreed. The property cost £645,000 and the SDLT charge levied by HMRC came to £74,500.

For the trade to be a qualifying trade for this purpose, one of the conditions that had to be met at the time the transaction took place was that the property must be a dwelling, ‘a significant part of the interior’ of which was offered to the public to ‘make use of or stay in’ for at least 28 days a year.

HMRC considered that once the conversion work had been carried out by the new owner, the property would no longer meet the exemption criteria. The purchaser argued that since the building was a dwelling when the transaction took place, the exemption should apply.

The First-tier Tribunal (FTT) accepted that once the conversion work was completed, the building would no longer be a dwelling, but a ‘hotel, inn or similar establishment’.  As the relief depended on the property continuing to qualify as a dwelling when it was made available for use by the public, the exemption did not apply. HMRC’s argument therefore prevailed.