The Law Society Gazette recently reported on a case where a pupil barrister had mistakenly cited fake cases as part of her legal submissions in a case involving a local authority’s duties towards a homeless man. She had found the cases through her internet research and did not realise that the cases which she had cited did not actually exist. They had been entirely made up by an artificial intelligence program even though they appeared to her to be genuine. The result was a wasted costs order not only against her but also against the Law Centre which had instructed her. Add to that the reputational damage against both as well as the possibility of professional sanction. That’s not to say that artificial intelligence should never be used as a research tool. Only that it is a professional responsibility to carry out the follow-up due diligence to ensure that what is cited is absolutely correct.
It’s important to recognise what exactly AI is. As far as I can see, AI, in this situation, is nothing more than an advanced search engine which not only identifies data but then goes on to mash it up and serve up something else out of its components. It’s like me going down to my local breakers yard and collecting bits and pieces to build my own car. I’m sure that if I asked AI to write my next Eurovision hit in the style of Elton John, it would present to me a rehash of Lulu’s ‘Boom Bang Bang’. Which brings me onto another controversial issue. Because if I then go on to use that content as part of my Eurovision entry, I will then be breaching copyright. But that doesn’t mean that I don’t use AI in my work, including the writing of this article.
As I was aware that this was not the first instance of fake cases being cited by AI, I asked my Gemini search engine to find me some other instances where lawyers have been caught out using fake cases generated by AI. It came up with the following cases: New York Aviation Injury Claim (Mata v Avianca 2023); Morgan v Morgan (Wyoming); UK Tax Tribunal Case (Harber v Commissioner for HM Revenue and Customs) which involved a self-represented tax payer.
Have I checked any of those cases out before including reference to them in this article? No I haven’t. But neither am I intending to cite them in any court proceedings anytime soon. So I’m afraid that you will just have to trust me.
One of the reasons given by the pupil barrister for her use of AI generated cases was that she did not have direct access to Lexus Nexus or the White Book, which contains the civil practice rules. In those circumstances my own ‘go to’ would be the British and Irish Legal Information Institute, which provides a free on-line legal resource for current case law. It also makes it incumbent for anyone acting for an opponent to also check out case law provided to them by another party, just to make sure that it actually exists.
Whilst Increases in stamp duty land tax taking effect 1st April 2025 are mainly geared towards private residential purchasers, local authority purchasers may not be not immune.
Save where a blanket relief can be claimed or for the very smallest transactions in terms of value, all local authority purchases will be affected by the reduction in the basic stamp duty threshold from £250,000 to £125,000. Add to that the 5% SDLT surcharge which is now added to all corporate residential purchases, including those below the new basic £125,000 threshold. Like every petrol purchase, SDLT can involve a tax-on-tax, particularly where a transaction is standard rated.
All of this is dead money which sucks resources out of tight local authority budgets, which might otherwise be applied towards regeneration. And whilst local authority conveyancers are not expected to have the expertise of a tax accountant, it is important to know enough about the calculation of property taxes to ask the right questions and to be able to query any tax-advice which appears to be wrong. It is about knowing what reliefs are available and being able to structure a complex transaction in the most tax efficient way.
Although there are many different taxes which can potentially affect property transactions, currently the three main property taxes are Stamp Duty Land Tax; Value Added Tax and Community Infrastructure Levy (where the council pays money to itself). We now look at each of these taxes in turn and examine the particular reliefs which are available to local authorities.
Stamp Duty Land Tax
The first thing to note is that different stamp duty land tax rates apply to residential and non-residential purchases. Generally, non-residential rates are more beneficial, not least because the 5% surcharge does not apply.
Although the difference between a residential and a non-residential transaction might seem obvious, that is not always the case. A purchase of a property which combines a mix of residential and non-residential use will be deemed non-residential. And although multiple dwelling relief has now been abolished, a local authority can still achieve a significant tax saving by electing to treat a single purchase of six or more dwellings as non-residential, by utilizing the exemption contained in Section 116(7) of the Finance Act 2003. The main blanket SDLT reliefs for local authorities are:
Registered Social Landlord Relief – which is only available to those local authorities who fall within that RSL category and then only for those affordable housing purchases which are grant-funded.
Transfer of property between companies – which may apply when a local authority is transacting with its own corporate subsidiary.
Compulsory Purchase Relief – which applies where a local authority is purchasing property under the umbrella of a compulsory purchase order (whether confirmed or not) but only where it is intended that the property acquired will be transferred on to a development partner. It will not apply to property acquired for development which the local authority is intending to carry out itself, although other reliefs might apply. The key purpose of compulsory purchase relief is not to make a transaction tax free but to avoid the double taxation which would otherwise apply when land is purchased and then transferred away in a back-to-back transaction.
Subsale relief – which, like CPO relief, Is intended to avoid a double tax liability in circumstances where a party contracts to purchase property and, before that transaction has completed, has transferred its contract to another party, who then steps into its shoes.
Even where blanket relief is not available for a complex transaction, it is still possible to reduce the stamp duty liability on a development transaction by structuring it in a way which ensures SDLT is only payable on the land value and not the entire development value of the transaction. Structuring a transaction in this way will generally involve separate standalone contracts for the land acquisition and another for the carrying out of the development, and with the bringing forward of completion of the land-transaction to Golden Brick, or earlier, which is the point at which a development becomes officially recognized as ‘residential ‘ and therefore zero rated for the purposes of VAT(see below). The key reference point when structuring a development purchase has to be SDLTM04015 of the Stamp Duty Land Tax Manual, “Scope – how much is chargeable: sale of land with associated construction contract Para 10 schedule 4 Finance Act 2003, which refers to the decision in Prudential Assurance Co Limited v IRC [1992] when Identifying the subject matter of the transaction for the purposes of stamp duty.
TOGC (Transfer as a going concern), also provides partial relief for some investment purchases, such as the landlord interest in a trading estate which is already fully let and where the local authority is stepping into the shoes of the previous landlord. Where a TOGC applies, SDLT will only be calculated on the net purchase price and not any additional VAT element. However this partial exemption can only apply when both the seller and the purchaser had waived VAT exemption before the transaction completes.
A practical issue for many local authority conveyancers, is how to ensure that tax which falls due on a transaction is paid within the required 14 days to avoid the automatic penalties which will otherwise apply. Any payment has to be correctly referenced so that it can be easily traced by HMRC and avoid follow-up query. Compliance with this 14-day deadline may not be problematic for a conveyancer who already holds funds on account. But it can be problematic for a conveyancer who is dependent on another department to ensure that payment is transmitted in a correct and timely way
Value Added Tax
A primary issue in any complex transaction is not only whether that transaction has been opted to tax but whether it should be opted to tax, to enable efficient recovery of vat on building or other construction costs. That is something which may require specialist tax advice. Remember also that a freehold sale of commercial new build is automatically subject to vat.. For all other cases the issue is whether there has been an option to tax. The default position is that non-residential transactions are exempt from vat. However the standard 20% will apply if it has been opted to tax. In most cases the imposition of a 20% VAT liability will be cost neutral in circumstances where the paying party is able to recover its VAT outlay as an input. Although as we have already seen, the charging of vat on a land transaction also has implications for the calculation of SDLT (see above). The imposition of vat on a property transaction will also be problematic for a charity or housing association which is unable to recover its vat as an input. That is the reason why many housing associations are advised to complete their purchases at ‘ golden brick’, when the transaction becomes zero rated for the purposes of VAT. Such zero rating also makes it easier for that housing Association to recover VAT on its own construction costs.
The issue of VAT on local authority transactions is particularly complex because it cannot be assumed that a local authority will be able to recover all of its VAT outlay, which in turn is dependent on whether the particular transaction can be classed as business, non-business or exempt. Official guidance on these issues is provided by VAT Notice 749: Local authorities and similar bodies, which helps local authorities and other public bodies decide which activities are business or non-business. Again, this is an issue on which specialist tax advice may be needed.
Community Infrastructure Levy (CIL)
Whilst affordable housing development by a registered social landlord will normally qualify for mandatory relief against CIL there are special rules for claiming it. The general rule is that Mandatory Social Housing Relief has to be officially claimed before the development commences and then only by an organization which is either the freeholder or which has a significant leasehold interest in the land affected. This is something which needs to be borne in mind when a local authority is working with a development partner which has yet to acquire its proprietary freehold or leasehold interest in the property but is still contractually obliged to get its development underway. In those situations it may be the local authority itself and not the development partner which has to make the formal application for that relief.
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V. Charles Ward Is a Senior Property Lawyer with HB Public Law and author of Local Authority Conveyancing Law and Practice (UK)
Speed is of the essence when it comes to the enforcement of planning regulations. Unauthorised building work can become immune from planning enforcement in as little as four years. For an authorised change of use, it is 10 years. Although the law was changed on 25 April, 2024 to extend the enforcement of time limits from four years to 10 years in relation to unauthorised building work, that change does not apply retrospectively. It means that unauthorized building work completed before that date will continue to be subject to the four year rule before it becomes immune from enforcement. Nor are planning irregularities always a victimless crime. Imagine if you were disturbed day and night by the revving of car engines because your next door neighbour had turned their domestic garage into a motor repair shop. Wouldn’t you want your council to take action?
Nor are local authorities obliged to act against planning irregularities in every case. Only when they consider it ‘expedient’ to do so. But this does not absolve councils from the responsibility to investigate complaints of planning breaches, where they are reported, in order to make that crucial decision. The council which refuses to do this and allows a planning irregularity to become ‘established’ by default, opens itself up to the possibility of ombudsman complaints. Nor is it any excuse for the local authority to say that it does not have the resources to investigate planning irregularities. Does it have the resources to pay out the compensation claims which will inevitably follow if it fails to act against planning irregularities where there is a need to do so?
Once a planning irregularity has been reported, it needs to be investigated. Only then, can a decision be made as to whether it is ‘expedient’ to take enforcement action. But that is only the beginning of a statutory process.
Information has to be gathered. A decision made whether it is expedient take planning enforcement action or to ignore the irregularity because it is considered harmless. Once it is decided that enforcement action has to be taken, a legal decision has to be taken as to the appropriate course of action to be taken against that planning-breach. There are several choices. Including a planning contravention notice; breach of condition notice; or the traditional enforcement notice, against which there is an appeal to the Secretary of state, which could, although rarely, lead to the cost of a public inquiry. Once any statutory appeals against the enforcement process has been exhausted, the local authority have to follow up with prosecution if the breach continues.
It is also important that councils are seen to be robust when it comes to regulatory enforcement. Otherwise it sends the wrong message. That planning irregularities can be ignored. It is why Dorset Council’s backlog of 900 cases is so problematic. Many of those pending cases are already on their way to becoming immune from planning enforcement, as well as those cases which have already become immune. If the council does not have the resources in-house to deal with it, and maybe it should consider outsourcing that function.
I am pleased to announce the publication of a book which pulls together everything I have learned as an in-house lawyer, including essential but difficult-to-find reference material. Please take a look and discover what a corporate client really wants from their in-house team. And it’s not ‘cheap and cheerful’. Thank you.
Noticeably absent from recent government announcements is any proposal to abolish statutory right-to-buy. To the contrary, Angela Rayner has signaled her commitment to keep the policy, Even if some of the crazy discounts are to be scaled back. Currently, around 40% of ex-right-to-buy properties are owned by private landlords, Meaning that councils have to rent back on their own estates just to meet their statutory housing obligations. And all paid from housing benefit. That’s you and me. No wonder first-time buyers and private renters are priced out of the market. But not everyone who has exercised their right-to-buy is a winner.
It is the high-rise leaseholders who have come off worst. They are the ones facing five figure service charge bills when their local council decides to replace windows. When everyone else living in a block gets it for nothing. But something has to give if you want to rebuild social housing stock and solve Britain’s housing crisis.
BRUCE AND HOLLY 