Taxation – Stamp duty land tax – “Grounds” of dwelling – Respondents purchasing seven-bedroom house with paddock – Respondents filing SDLT return declaring property in mixed residential and non-residential use – Appellant commissioners issuing closure notice on basis property entirely residential – First-tier Tribunal allowing respondents’ appeal – Appellants appealing – Whether paddock being part of grounds of house – Appeal dismissed
The respondents purchased a seven-bedroom family house outside Henley-on-Thames with indoor swimming pool, gardens which included a pavilion and a tennis court, and a paddock. The respondents filed a stamp duty land tax (SDLT) return declaring that the property was a residential and non-residential mixed-use property so that SDLT was chargeable on the transaction at a lower rate than if the property had been purely residential.
The appellant commissioners opened an enquiry and subsequently issued a closure notice under paragraph 23 of schedule 10 to the Finance Act 2003. The effect of the notice was to increase the SDLT due in respect of the acquisition of the property from £169,500 to £330,750 on the basis that the property was entirely residential.
The First-tier Tribunal allowed an appeal by the respondents deciding that the paddock, in respect of which the respondents had granted a grazing lease on the day of completion of the purchase, was a non-residential part of the property: [2023] UKFTT 450 (TC).
The appellants appealed contending that the FTT erred in declining to apply the Upper Tribunal’s decision in Ladson Preston Ltd v HMRC [2022] UKUT 301 (TCC); [2022] PLSCS 192 in determining whether the property was entirely residential; and in treating the grazing lease as relevant. In any event, a finding that the property was not entirely residential property was not open to the FTT on the facts.
Held: The appeal was dismissed.
(1) The only issue was whether the paddock acquired as part of the purchase was part of the grounds of the house. If the FTT was entitled to find that the paddock, without the grazing lease, was not part of the grounds then the UT did not need to go further. However, if the FTT was not entitled so to find, it had to be considered whether the existence of the grazing lease made any difference to the characterisation of the paddock and, if so, whether the FTT was entitled to take it into account.
(2) Section 116(1)(b) of the Finance Act 2003 referred to a garden or grounds “of” a dwelling; there had to be a connection between the garden or grounds and the dwelling. But the section did not spell out what criteria were to be applied for the purpose of establishing the necessary connection.
Given that “garden” or “grounds” were ordinary English words which had to be applied to different sets of facts, an approach which involved identifying the relevant factors or considerations and balancing them when they did not all point in the same direction was an entirely conventional way of carrying out the necessary evaluation.
HMRC’s SDLT manual was a fair and balanced starting point (considering historic and future use, layout, proximity to the dwelling, extent, and legal factors/constraints). Each case had to be considered separately in the light of its own factors and the weight to be attached to those factors in the particular case.
Contiguity was important and grounds had to be adjacent to or surround the dwelling. However, it was not necessary that the grounds be needed for “reasonable enjoyment” of the dwelling having regard to its size and nature. Adjoining land in common ownership would not form part of the grounds of a dwelling if it was used or occupied for a purpose separate from and unconnected with the dwelling. That purpose need not be (although it commonly would be) commercial: Hyman & Ors v HMRC [2021] UKUT 68 (TCC); [2021] PLSCS 62 and Hyman and Goodfellow v HMRC [2022] EWCA Civ 185; [2022] EGLR 17 applied.
(3) Since binding authority now established that “grounds” were not confined to land necessary for the reasonable enjoyment of a dwelling, it was consistent that third parties might have rights over, or use, the grounds, for example under planning or environmental law, without them ceasing to be grounds of the dwelling. Whether or not the land was used for a commercial purpose, which was clearly a relevant factor, was a separate question: The How Development 1 Ltd v HMRC [2023] UKUT 84 (TCC); [2023] PLSCS 59 considered.
The FTT identified the correct approach and found that the paddock was not part of the grounds of the house for reasons other than the grant of the grazing lease. Although the FTT erred in ascribing weight to the fact that the respondents would have preferred to buy the house without the paddock, if it had been possible to exclude it from the purchase, the FTT’s conclusion was supported by its other findings which were either unchallenged or upheld.
It could not be said that the FTT’s conclusion was rationally insupportable. The UT was not compelled to interfere with the FTT’s findings and evaluation and declined to do so. The FTT was entitled to conclude that the paddock, without the grazing lease, was not part of the grounds of the house, and the appeal had to be dismissed.
(4) SDLT was normally charged as a percentage of the “chargeable consideration” given for the chargeable interest acquired. Where, as in this case, the chargeable interest was acquired at completion of the relevant land transaction, the chargeable interest acquired was the chargeable interest that existed at the time of completion. Whether a particular SDLT relief or treatment applied required an analysis of the nature of the chargeable interest acquired at completion (section 43(6) of the 2003 Act): Ladson Preston considered.
In the present case, the FTT should have applied that approach when considering whether the paddock was part of the grounds of the house. It should have focused its assessment on whether the paddock was part of the grounds at the completion of the purchase of the property. Although it was not necessary to decide the point, as the grazing lease did not exist at the time of completion, it should not have been part of the analysis of the nature of the chargeable interest acquired at that time. The findings of fact were consistent with the grazing lease being an entirely new use of the paddock which commenced after the respondents had acquired the chargeable interest on completion.
Marika Lemos and Colm Kelly (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the appellants; Patrick Cannon (instructed by Direct Access) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Commissioners of HM Revenue and Customs v Suterwalla and another
