Trade related Property and Goodwill. An SDLT update?

Trade related property is defined in the RICS “Red Book” guidance as “any type of real property designed for a specific type of business where the property value reflects the trading potential for that business”

Examples of trade related business property include pubs, restaurants, hotels, care homes and cinemas (not an exhaustive list).

Previously HMRC have taken the very narrow view that a business such as a hotel is incapable of being sold separately from the property and as such any amount of the purchase price paid to acquire such a business attributable to “goodwill” is subject to SDLT as such goodwill is attached to the property itself and affects its value.

Under the SDLT legislation there is a duty to “just and reasonably” apportion the money paid to a seller between the business element and the property element. Complying with this requirement, taking a view and getting HMRC to agree the proper amount of SDLT payable has been difficult to say the least.

HMRC have now however recognised that not all amounts which can be said to be attributable to the goodwill of a trade related property business are going to be subject to SDLT and that each case is different.

This viewpoint has been put forward by advisers for some time and it is easy to see why.

 Take 3 hotels.The Hotel du Vin in Birmingham City Centre and the Hotel at Scotch Corner and Lumley Castle Hotel in Chester Le Street, Durham.

The “Hotel Du Vin” is a well-known upmarket hotel brand it is easy to see that people may choose to stay in the Hotel Du Vin not because it is the only hotel in Birmingham but because of its promise of excellent service and its general brand reputation. The Hotel at Scotch Corner is a convenient stop off for travellers breaking their northwards journey. It can be argued therefore that people stay there because of its location rather than the hotel service itself (although of course if you took away the hotel business you would be left with just a moderately large building off a very busy roundabout) and Lumley Castle Hotel will hold special attraction for visitors and indeed any buyer because of its historical interest.

Looking at goodwill on these businesses the issues therefore are that it is arguable that the value of the goodwill of the Hotel Du Vin hotel business would be less attributable to the property itself and more to the brand name, the Scotch Corner Hotel must have to attribute some of its goodwill to its location and for Lumley Castle the hotel business must be almost all about the property itself.

There will remain lots of grey areas however, and HMRC aren’t really letting go of the right to argue the SDLT position with regards to goodwill. The situation really remains the same, a requirement to ensure that if you are buying a hotel, or a similar trade related property, proper consideration is given to the valuation, and in this complex area you really need a professional valuation, to ensure that the correct amount of SDLT is payable and the probability that you are still going to have to suffer enquiries and correspondence with HMRC whilst you agree it.