Tribunal allows taxpayer's appeal and confirms that non-residential SDLT rates applied

In Anne-Marie Hurst v HMRC [2024] UKFTT 00540 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal and confirmed that non-residential stamp duty land tax (SDLT) rate applied because the sellers of the property had used it as a 'hotel, inn or similar establishment' (HISE).

Background

On 27 July 2021, a contract for sale was agreed between Mrs Anne-Marie Hurst and the owners of Sortridge Manor, a 16th century Grade II listed manor house (the Property). The freehold was transferred on 12 August 2021.

The SDLT return for the transaction was completed and filed on the basis that, on 12 August 2021 (the effective date of the transaction (EDT)), only part of the Property was used for residential purposes such that the non-residential rate of SDLT was applicable. Mrs Hurst was of the view that the non-residential rate was appropriate because either: (1) the Property had been used as a HISE; or (2) by reason of an agricultural agreement, pursuant to which a farmer used part of the grounds for grazing and hay harvesting. 

On 17 August 2022, HMRC issued a closure notice to Mrs Hurst, pursuant to paragraph 23, Schedule 10, Finance Act 2003 (FA 2003). Under the closure notice, HMRC concluded that the higher residential rate of SDLT was due on the purchase of the Property. 

Mrs Hurst appealed the closure notice to the FTT. 

FTT decision

The appeal was allowed.  

Mrs Hurst argued that on the EDT the Property had been used as a HISE (for the purposes of section 116(3)(f), FA 2003) and therefore was subject to the non-residential rate of SDLT. HMRC argued that the Property was not used and/or there was insufficient evidence of it being used as an HISE and therefore the higher residential rate of SDLT applied as the Property was suitable for use as a dwelling (under section 116(1) FA 2003, a residential property is a building used, or suitable for use, as a dwelling, any garden or grounds of a dwelling and any interest or right subsisting for the benefit of such a dwelling, garden or grounds).

Mrs Hurst also argued that the non-residential rate of SDLT applied because part of the Property did not constitute grounds, within the meaning of section 116(1)(b), as it was used by a farmer under a commercial lease/license and the purchase price was therefore paid for the dwelling. 

The FTT therefore had to determine the following two issues: 

(1) whether, on the facts, the Property was used as a HISE by the previous owners; and 

(2) whether the meadow was part of the grounds of the dwelling, or used for commercial purposes. 

On issue (1), the FTT said that:

• Whether a particular property has been used as a HISE had tol be determined by an objective assessment of all the facts and circumstances in order to determine in an ordinary sense whether the property was used to provide sleeping accommodation with additional amenities commonly provided by hotels, inns and similar establishments, which the FTT considered plainly included bed and breakfasts. 
• Once it is determined that the property in question has been used as a HISE, its suitability and/or partial use as a dwelling is ignored. 
• A HISE requires there to be a commercial enterprise rather than a "hobby" and the provision of services with the accommodation which would not normally be provided with holiday accommodation i.e. there must be more than just accommodation provided. 
• Applying the multifactorial assessment, on balance, the scale of activities associated with the provision of accommodation to paying guests in the instant case was enough to have reached the threshold necessary to represent commercial use with sufficient permanence and continuity to qualify as having used the Property as a HISE and not simply as a dwelling.  
• The FTT noted that paying guests were not simply provided with accommodation but were provided with fully serviced accommodation, high quality breakfasts and wider amenity which cannot be regarded as passive use of the Property. 

On issue (2), the FTT commented that:

• Where a property has significant grounds, they will be considered to be “of” the dwelling (and thereby treated as residential property) where, having carried out a multifactorial assessment of all the evidence, it is established that the grounds are in common ownership and continuous with the dwelling and are not used for a purpose separate from and unconnected with the dwelling, usually for a commercial purpose. 
• After undertaking such an assessment, there was not any relevant commercial use by the previous owners of the meadow; rather it was a barter of convenience where the previous owners had someone to maintain their meadow and that person took some benefit in being able to cut hay and graze his sheep. 
• The use of the meadow did not therefore represent commercial use of the grounds of the Property. 

However, the FTT's determination on issue (1), meant that the non-residential rates applied.  

Comment 

This decision provides helpful clarification of the factors that the FTT will consider when determining whether a property is a HISE. The FTT's decision also confirms that mere occasional use as a bed and breakfast and features of passivity, are unlikely to be sufficient for a property to be considered a HISE. 

The decision also highlights the highly fact sensitive nature of such cases.

The decision can be viewed here.