Tribunal allows taxpayer's appeal in respect of SDLT and mixed-use premises

In Suterwalla v HMRC [2023] UKFTT 450 (TC), the First-tier Tribunal (FTT) held that a property comprising a dwelling house, and separate paddock subject to a grazing lease, was mixed use for Stamp Duty Land Tax (SDLT) purposes.

Background

Mr and Mrs Suterwalla (the Appellants) acquired a property (the Property) in December 2020. The Property consisted of a dwelling house, garden, tennis court and paddock. The paddock was not visible from the house, was separated from the garden by a hedge, and was accessed through a small gate. On the day of purchase, but after completion, the paddock was leased out by the Appellants for the grazing of horses at a rent of £1,000 per annum. 

Shortly after purchasing the Property, the Appellants filed an SDLT return (the Return) and self-assessed SDLT in the amount of £169,500, on the basis that the Property was residential and non-residential mixed use. In August 2021 HMRC opened an enquiry into the Return, and in November 2021 issued a closure notice amending the Return to charge SDLT at the residential rate in the amount of £330,750. 

The Appellants appealed to HMRC, and following an internal review and a statutory review, HMRC issued a conclusion letter upholding its decision in January 2022. The Appellants appealed to the FTT, the key issue being whether the Property constituted land consisting entirely of residential property, or whether it also included land that was non-residential property.

HMRC asserted that the paddock formed part of the garden and grounds of the Property on the basis that the Property was registered in a single folio and that the Property was sold as an "equestrian property". HMRC argued that the paddock was necessary for the equestrian nature of the Property and added to its rural character. HMRC also contended that, in accordance with Ladsdon Preston Limited (1) AKA Developments Greenview Limited (2) v HMRC [2022] UKUT 00301 (TCC), it was appropriate to consider the use of the Property at the time of completion of the purchase. Since the grazing agreement was not entered into until after the Appellants had purchased the Property, at completion, the Property was residential.

The Appellants argued that the house, garden and tennis court formed a coherent whole. In contrast, the paddock, which the Appellants would not have purchased had it been possible not to do so, did not perform any function in relation to the house and could not be seen from the house, such that it could not be said to be “of the dwelling”. Further, the grazing lease was a commercial arrangement that restricted the Appellants’ use of the paddock such that, in accordance with Hyman v HMRC [2019] UKFTT 0469, the paddock did not constitute "grounds" occupied with the house. On this basis, the Appellants argued the paddock was not residential in nature so that, for SDLT purposes, the Property consisted of both residential and non-residential property.

The Appellants also contended that the fact the grazing lease was entered into on the same day as completion did not affect the fact that the paddock was not “of the dwelling”. In that regard, the Appellants submitted that the FTT should not follow its earlier decision in Brandbros Ltd v HMRC [2021] UKFTT 157 (TC), instead relying on the dicta in Abbey National v Cann [1990] 1 All ER 1085 and Ingram v HMRC [2001] 1 AC 303, to argue that HMRC was relying on a "scintilla temporis" between the purchase of the Property and the grant of the grazing lease, which was no more than a legal artifice.

FTT decision

The appeal was allowed. 

The FTT rejected both of HMRC's main contentions. The paddock was contained on a separate folio to the house, gardens and tennis court, the word “equestrian” was not used in the sales brochure for the Property and nor were there stables or other suitable accommodation for housing horses in the sales brochure.

Further, the FTT declined to follow the decision in Ladsdon Preston as that appeal concerned multiple dwellings and not SDLT, and preferred the dicta in Abbey National and Ingram over the decision in Brandbros, which was only persuasive. Accordingly, the existence of the grazing lease was relevant, and the FTT found that the grazing lease was of commercial benefit to the Appellants.

Finally, the FTT determined that, even if it was wrong on the relevancy of the grazing lease, there were sufficient other reasons to allow the appeal. In particular, the FTT found that HMRC should not have issued the closure notice seeking additional SDLT because: 

(1) the paddock was not visible from the dwelling house nor from the gardens; 

(2) there was only one small gate access from the garden to the paddock; 

(3) the lessee was able to access the paddock from a bridle path without having to enter the Appellants' garden; 

(4) the grazing lease was commercial, resulting in the Property consisting of residential and non-residential property; 

(5) the title to the dwelling house, gardens and tennis court, was distinct from the title to the paddock; and 

(6) the Appellants would not have bought the paddock if it had been possible to exclude it from the purchase.

Comment

While the Appellants were ultimately successful, the law in this area is left in something of an uncertain state given the conflicting decision in Brandbros and the approach of the Upper Tribunal in Ladson Preston. HMRC may therefore decide to seek permission to appeal the decision to the Upper Tribunal in order to obtain greater clarity on the correct legal position in this important area of the law. 

The decision may be viewed here.