Taxation – Stamp duty land tax – Tax rate – Appellants claiming repayment of SDLT – First-tier Tribunal upholding decision of respondent commissioners to refuse repayment – Appellants appealing – Whether Table A or Table B rates applicable – Whether house and land included land not residential property – Whether all land was, or formed part of, garden or grounds of house – Appeal dismissed
In three conjoined appeals, each of the appellants had purchased a house, together with an area of land. Section 42 of the Finance Act 2003 provided that stamp duty land tax (SDLT) was charged on land transactions, defined by section 43 as any acquisition of a chargeable interest. A chargeable interest was defined by section 48 to include an estate, interest, right or power in or over land. Section 55 dealt with the amount of tax chargeable on a chargeable transaction. In these appeals, tax was chargeable in accordance with section 55(1B) which referred to two tables of rates for different parts of the total consideration for the transaction.
Table A applied “if the relevant land consists entirely of residential property”. Table B applied “if the relevant land consists of or includes land that is not residential property”. The rates in Table A were higher than in Table B. Section 55(1B) referred to “the relevant land” which was defined in section 55(3) as “the land an interest in which is the main subject-matter of the transaction”.
The appellants appealed against the refusal by the respondent commissioners of their claims for repayment of SDLT. The appeals raised the same point of law as to the meaning and effect of section 116 of the 2003 Act which contained a definition of “residential property” for the purposes of Part 4 of the Act, which dealt with SDLT. The issue in each case was whether all of the land sold together with the house “[was] or form[ed] part of the garden or grounds of” the house.
The First-tier Tribunal upheld the respondents’ decision, concluding that “grounds” had a wide meaning and referred to land which was attached to or surrounding a house, was occupied with the house, and was available to the house-owners for their use. The appellants appealed.
Held: The appeal was dismissed.
(1) Section 116(1)(b) referred to “the garden or grounds of a building” which was a reference to a building within section 116(1)(a). For present purposes, the type of building which came within section 116(1)(a) was a “dwelling”. Section 116(1)(b) referred to a garden or grounds “of” a dwelling. The word “of” showed that there had to be a connection between the garden or grounds and the dwelling. The section did not spell out what criteria were to be applied for the purpose of establishing the necessary connection. The Finance Act 2003, in a separate definition of “dwelling” for a specific purpose, referred to “land occupied and enjoyed with the dwelling as its garden or grounds”.
The words “forms part of” in section 116(1)(b) dealt with a case where there was land which was a garden or grounds of a dwelling but the sale related to part only of the garden or grounds and not the whole. That could arise in two different cases: (i) where the owner of a house and its garden or grounds sold the house and part of the garden or grounds; and (ii) where the owner of a house and its garden or grounds sold only a part of the garden or grounds. In each case, the part of the garden or grounds came within the definition of residential property. There was no wording in section 116(1)(b) which imposed, or even hinted at, a requirement that land could only be a garden or grounds of a dwelling if the land was needed for the reasonable enjoyment of the dwelling.
That conclusion was supported by Schedule 6A to the 2003 Act which included references to a “dwelling” and to “the permitted area”. Paragraph 7(1) of Schedule 6A stated that “dwelling” included land occupied and enjoyed with the dwelling as its garden or grounds. Paragraph 7(3) defined “permitted area”, in relation to a dwelling, as meaning land occupied and enjoyed with the dwelling as its garden or grounds that did not exceed an area (inclusive of the site of the dwelling) of 0.5 of a hectare or “such larger area as is required for the reasonable enjoyment of the dwelling as a dwelling having regard to its size and character”. The draftsman plainly thought that one could have an area of land which was more extensive than that limitation and still be regarded as a garden or grounds, otherwise it would not have been necessary to introduce the express limitation.
(2) In relation to section 116, there were two different sets of guidance in HMRC’s SDLT manual: The guidance prior to 2019 supported the appellants’ submissions. The guidance from 2019 provided no support for those submissions. The first set of guidance was wholly unpersuasive: It wrongly suggested that HMRC should apply a similar test to that applied for capital gains tax relief for main residences by reference to section 222(3) of the Taxation of Capital Gains Tax Act 1992. Under section 222, relief was available in relation to the gain on the disposal of a dwelling-house which had been the taxpayer’s main residence. There was an express limitation to a permitted area whereas in section 116, there was no such limitation. The further guidance, that “garden or grounds” included land which was needed for the reasonable enjoyment of the dwelling, was plainly the result of the earlier statement that the test for section 116 was similar to that for section 222(3) and was also wrong.
The post-2019 guidance correctly stated that the language of section 116 should be given its natural meaning; and that there was no statutory concept of “reasonable enjoyment” and no statutory size limit that determined what “garden or grounds” meant. It further correctly stated that a wide range of factors came into consideration; no single factor was likely to be determinative by itself; not all factors were of equal weight and one strong factor could outweigh several weaker contrary indicators; where a number of contrasting factors existed, it is necessary to weigh up all the factors in order to come to a balanced judgment of whether the land in question constituted “garden or grounds”.
Patrick Cannon (instructed by Cornerstone Tax) appeared for the appellants; James Henderson and Calypso Blaj (instructed by the General Counsel and Solicitor to HM Revenue & Customs) appeared for the respondents.
Eileen O’Grady, barrister
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