Upper Tribunal considers 'wholly and exclusively' test in the context of SDLT and ATED

In Investment and Securities Trust Ltd v HMRC [2025] UKUT 00331 (TCC), the Upper Tribunal (UT) considered the different 'wholly and exclusively' tests which apply to Stamp Duty Land Tax (SDLT) and Annual Tax on Enveloped Dwellings (ATED) and held that a company holding a property option for redevelopment and resale, qualified for ATED relief but not relief from the 15% higher rate of SDLT upon acquisition, as the property was not held exclusively for a qualifying trade purpose at that time.

Background

Investment and Securities Trust Ltd (IST) was a property development company controlled indirectly by Ms Voice, who also owned and occupied a high-value residential property in St John’s Wood, London. In March 2014, IST entered into an option agreement with Ms Voice, granting it the right to acquire the property for £9.3m. The option premium was £4.65m, nearly 50% of the property’s value, and was structured so that the price paid for the option would form part of the purchase price if the option was exercised. 

IST intended to redevelop the property and carried on a property development trade throughout the relevant period. However, market conditions deteriorated and, after exercising the option in 2019, IST sold the property without having carried out the intended redevelopment work.

IST filed its SDLT return on the basis that the higher 15% rate did not apply and claimed relief from ATED on the basis that the option was acquired and held exclusively for the purposes of a property development trade. HMRC disagreed with IST and assessed it to SDLT at the higher rate and charged ATED.

IST appealed the assessments to the First-tier Tribunal (FTT). While the FTT accepted that IST carried on a genuine property development trade and intended to redevelop the property, it concluded that the option was not acquired exclusively for qualifying purposes. In particular, it found that the option also served to address Ms Voice’s pressing need for funds and to prevent the sale of the property to third parties. On that basis, relief from both the higher rate of SDLT and ATED, was denied.

IST appealed to the UT.

UT's decision

The appeal was allowed in part.

The UT considered separately the availability of relief from SDLT and ATED, emphasising the different statutory tests.

The UT dismissed IST’s appeal in relation to the SDLT assessment. Paragraph 5(1)(b), Schedule 4A, Finance Act 2003, requires the chargeable interest itself (in this case, the option) to be acquired exclusively for qualifying purposes. The UT confirmed that this is not a 'main purpose' test and that the wider commercial context, including the structure and pricing of the option, may properly be considered when identifying purpose.

Although the UT accepted that some of the additional purposes identified by the FTT (such as preventing a third-party sale and allowing time to raise funds) fell within the scope of a property development trade, the FTT was entitled to find that one purpose of acquiring the option was to address Ms Voice’s personal need for liquidity. That non-qualifying purpose was sufficient to defeat the exclusive purpose requirement. 

The UT allowed IST’s appeal in relation to the ATED assessments. It held that the FTT had erred in law by treating the purpose of acquiring the option as determinative of the purpose for which it was held. Section 138, Finance Act 2013, requires a day-by-day assessment of the purpose for which the interest is held during the relevant chargeable periods.

On the facts, the UT concluded that Ms Voice’s pressing need for funds was a purpose of acquiring the option, but that purpose had been exhausted once the option was granted. There was no evidence that it remained a purpose of holding the option thereafter. The remaining purposes fell squarely within IST’s property development trade. Accordingly, the statutory conditions for ATED relief were satisfied, and the ATED assessments were set aside.

Comment

This decision highlights an important distinction between acquisition purpose (for SDLT) and holding purpose (for ATED). It confirms that non-commercial, or shareholder-driven motives at the point of acquisition, can defeat SDLT relief even where the underlying land is intended for development.

By contrast, the UT’s approach to ATED recognises that purposes may change over time and that relief can become available once any non-qualifying acquisition purpose has fallen away. The decision therefore reinforces the need for a temporal and fact-sensitive analysis when advising on ATED liability.

The decision will be of particular interest to property developers using options or other non-standard acquisition structures, especially where connected parties are involved. While such arrangements may be commercially expedient, they may prevent SDLT relief if they serve mixed purposes at acquisition.

The decision can be viewed here.