Taxation – Stamp duty land tax – Multiple dwellings relief – Section 116 of Finance Act 2003 – Respondent claiming lower rate of stamp duty land tax for mixed use property on land transaction return – Appellant commissioners concluding property residential and charging residential rate – First-tier Tribunal finding property residential but applying multiple dwellings relief – Whether FTT erring in law – Appeal allowed
In 2017, the respondent purchased a property comprising land and buildings in Oxford for £6.5 million. The property comprised two separate registered titles. The first was a semi-detached house and gardens. The second was adjoining land and a building known as the Old Summer House (the property) which had a separate access and was originally used as a garage and later as an artist’s studio.
Two weeks prior to completion, the vendors granted a commercial lease of the property for six months. The lease contained a covenant that the property should not be used for residential purposes.
The respondent submitted a land transaction return which stated that the property was mixed use and paying SDLT at the lower non-residential rate of £314,500.
The appellant commissioners concluded that the property was residential as defined in section 116 of the Finance Act 2003 because it was “suitable for use as a dwelling” and amended the return to charge SDLT at the residential rate.
On appeal, the First Tier Tribunal (FTT) found that the property was “suitable for use as a dwelling” but decided (although not argued) that the respondent asking the vendor to grant a commercial lease of the property brought the case within the anti-avoidance provisions in section 75A of the 2003 Act. Therefore, the residential rate applied. However, the FTT allowed the respondent’s late claim for multiple dwellings relief pursuant to section 58D and schedule 6B of the 2003 Act. The appellant appealed.
Held: The appeal was allowed.
(1) In section 116(1)(a), the word “suitable” implied that the property had to be appropriate or fit for use as a single dwelling. That fell to be determined by the physical attributes of the property as they existed at the effective date of the transaction.
The word “dwelling” described a place suitable for residential accommodation which could provide the occupant with facilities for basic domestic living needs, including the need to sleep and attend to personal and hygiene needs. The word “single” emphasised that the dwelling had to comprise a separate self-contained living unit. The test was objective.
The question of whether a property satisfied those criteria required a multi-factorial assessment. In the present context, that involved ascertaining the characteristics of the buildings intended to be covered by the phrase “suitable for use as a dwelling” and considering whether the property fell within that class of buildings.
(2) If a lease prohibited use as a dwelling, but the building was actually used as a dwelling at the time of the transaction then it would be residential property. The landlord might acquiesce in such use and waive the breach or might not be aware of the breach. The existence of the restriction was irrelevant in those circumstances.
The evidence before the FTT clearly established that there was planning permission for use as a summerhouse, garden workshop and conservatory. There was a certificate that use as an independent residential unit was lawful. Use as a commercial studio pursuant to the lease was an unauthorised development for planning purposes. It amounted to a breach of planning control laws and gave rise to the possibility of enforcement action by the local planning authority.
(3) The FTT’s failure to take into account the covenant in the lease and the planning position were material errors of law. Therefore, its decision that the property was not suitable for use as a dwelling would be set aside and the tribunal would remake the decision.
Each case had to be considered on its own particular facts. Having looked at the plans and photographs of the building, it was physically suitable for use as a dwelling.
The position overall was that commercial use was restricted by planning law and residential use was restricted by the lease. On the facts of this case, where the legal restrictions were effectively inconsistent, it was the physical attributes which were dominant; the property was suitable for use as a dwelling at the effective date of the land transaction.
(4) The FTT was wrong to find that section 75A of the 2003 Act was engaged in the circumstances of the respondent’s transaction. Section 75A was enacted to counter tax avoidance where a number of transactions were used to effect the disposal and acquisition of a chargeable interest. In broad terms, it applied where those transactions resulted in a reduced liability, or no liability, to SDLT compared to a notional transaction in which the chargeable interest was acquired directly by the purchaser.
In the present case, the SDLT payable on the scheme transactions and the notional transaction would be the same, whether or not the relevant land was residential or non-residential property.
(5) Section 58 of the 2003 Act provided that multiple dwellings relief had to be claimed in a land transaction return or an amendment of such a return. There was no provision in the prescribed form of land transaction return whereby a claim could be made in the alternative to the treatment which the taxpayer had adopted in the return. It was therefore not open to the respondent to make a claim for multiple dwellings relief in the return whilst maintaining his case that the property was non-residential property.
SDLT was a self-assessed tax which imposed hard-edged deadlines, both on taxpayers and HMRC, for the sound administration of the tax system and to achieve certainty and finality. Where a relief required a claim, and a claim was not made in accordance with any procedural requirements, the taxpayer would not be entitled to relief. In the present context, section 58D(2) was clear that relief “must” be claimed in a return or an amended return. The relevant facts were known to the respondent at the time he made his return. He erred in concluding that the property was non-residential. The absence of any provision for the respondent to make a claim out of time or during an enquiry was consistent with the object of certainty and finality: Candy v HM Revenue and Customs [2022] EWCA Civ 1447; [2023] EGLR 7 considered.
The FTT was wrong to allow the appeal in part and reduce the self-assessment by reference to multiple dwellings relief.
Ross Birkbeck (instructed by HMRC Solicitors) appeared for the appellants; Michael Ripley (instructed by Direct Access) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Commissioners of HM Revenue and Customs v Ridgway
