Stamp Duty Land Tax and the case of Bemal Patel v HMRC

In the case of Bemal Patel v HMRC [2025] UKFTT 00373 (TC) decided in April 2025, the First-tier Tax Tribunal considered whether a building which, at the time of the acquisition, was just a building site pending the building being developed as a dwelling, should be treated as residential property for SDLT purposes at that time. The building in question was neither used nor suitable for use as a dwelling at the time of acquisition (and so clearly could not be classified as residential property on the basis of its physical state as at the date of acquisition). The question, therefore, which the Tribunal had to decide was whether, at time of the acquisition, the building could be classified as residential property under the provision in the SDLT legislation treating the acquisition of a building as the acquisition of residential property where, on the effective date of the acquisition, the building “is in the process of being constructed or adapted for use as a dwelling”.

The facts of Bemal Patel v HMRC

Mr Patel had purchased the building in Elvaston Place for £6,679,615 in May 2021 and had paid SDLT of £799,422. His financial agents, Haslers, then sought a repayment of £475,961 on the basis the building was not residential even though it was two flats in the process of being converted into one 5-bedroom house. The basis for this argument was that the building was subject to a Planning Condition that it could not be occupied as a residence until practical completion of the redevelopment of a nearby mixed-use property in Queen’s Gate Terrace (also previously owned by the former owner of Elvaston) into five residential units. As the development plan of the relevant local authority (the Royal Borough of Kensington and Chelsea) was to increase the supply and choice of housing in the Borough, and the Elvaston Place redevelopment would lead to a loss of one residential unit, the local authority required the new residential units in the redeveloped Queen’s Gate Terrace property (which, taken together with Elvaston, as redeveloped, would, overall, create 4 additional residential units) to be available before Elvaston Place could be occupied. Mr Patel had unsuccessfully sought to also buy the property in Queen’s Gate Terrace at the same time so he could ensure the Planning Condition was satisfied but the development had proceeded and was nearing completion. Once the Planning Condition was satisfied, the completed house at Elvaston Place was estimated to be worth £16.5 million.

Both parties agreed that the test as to whether Elvaston Place was a dwelling needed to be determined by reference to whether, viewed at the time of the acquisition, the “Finished Building” (i.e. Elvaston Place completed in accordance with the applicable planning permission etc.) would be suitable for use as a dwelling. Counsel for Mr Patel argued that, owing to the Planning Condition imposing a legal restriction on the occupation of the Finished Building at the time of acquisition, the Finished Building, as considered at that time, could not be occupied and so could not be used as a dwelling. He argued that it followed that, when Elvaston Place was acquired by Mr Patel, it was not “in the process of being constructed or adapted for use as a dwelling” and so was not residential property for SDLT purposes. Neither the prospective lifting of the condition on the completion the Queen’s Gate Terrace development nor any non-enforcement of that condition was relevant.

The Tribunal disagreed, stating:

‘“occupation” is not the same as “use” and we consider that this applies generally, not just in the context of the need for repairs and renovation. The Planning Condition imposes a prohibition on occupation, unless and until a certain event occurs. It does not affect the essential characteristics and nature of the Finished Building.’

In finding that Elvaston Place was at the EDT a building that was in the process of being constructed or adapted for use [as] a dwelling and accordingly fell within the definition of residential property in section 116(1) Finance Act 2003 and subject to the residential rate of SDLT, the Tribunal stated:

‘In the present context, we must focus on the essential characteristics and nature of the Finished Building and, objectively, the Finished Building, completed in accordance with the planning permission in effect at the EDT, will be suitable for use as a dwelling. The Planning Condition does not affect the suitability of the Finished Building for use as a dwelling; it affects the ability of Mr Patel to occupy it. The Planning Condition does not place a permanent bar on occupation. It would be extraordinary if it did, given that the purpose of it is to ensure an increase in the number of residential units available in the Borough. It is simply a condition, which may be met, even though it is uncertain when or if that will happen.’

What will Bemal Patel v HMRC mean going forward?

The circumstances of this case are somewhat unusual and it might be thought that the taxpayer’s case had limited merit given the ultimate residential nature of the development. However, the case gives a clear and helpful analysis of what constitutes residential property for SDLT purposes, emphasising the importance (taking account of general case law on the point) of a multifactorial analysis, giving due weight, dependent on the context, to legal restrictions, on the one hand, and physical characteristics, on the other. The issue of whether property is residential property for SDLT purposes remains far from clear in many cases and in cases of any doubt, it is always worth looking into the point in more detail and seeking advice, as appropriate.

If you have any questions or concerns about Stamp Duty Land Tax or property tax, please contact tax lawyer Michael Fluss.