Taxation – Stamp duty land tax – Residential property – First-tier Tribunal deciding woodland purchased by appellant together with large residential property formed part of property’s “garden or grounds” for the purposes of section 116(1)(b) Finance Act 2003 – Appellant appealing – Whether woodland area part of “the grounds” of a property and therefore “residential property” – Whether necessary for land to be accessible from dwelling – Appeal dismissed
A property known as The How, a large country house in Cambridgeshire, was purchased by the appellant on 2 March 2018 for £2.8m. It comprised approximately 15.5 acres of land, which included the main house, a lodge house, outbuildings, areas previously used as market gardens, orchards, gardens, grounds and approximately 2 acres of woodland, the boundary of which met the River Ouse.
The appellant submitted a stamp duty land tax (SDLT) return in which it classified the property as residential property. Subsequently, the appellant’s tax advisers wrote to the respondent commissioners stating that the property should have been classified as mixed-use as the woodland on the south side of the property was non-residential.
It was common ground that the woodland did not form part of the “garden”. The real issue was whether it formed part of the “grounds”. If it did, a higher rate of SDLT applied; if it did not, a lower rate was applicable. The difference in SDLT between the two different classifications was £204,250.
The respondent commissioners did not accept that any of the land forming part of the property was non-residential and issued a closure notice to that effect. The appellant challenged that notice and the First-tier Tribunal (FTT) determined that woodland formed part of the property’s “garden or grounds” for the purposes of section 116(1)(b) of the Finance Act 2003. The appellant appealed to the Upper Tribunal (UT).
Held: The appeal was dismissed.
(1) The words of section 116 of the 2003 Act were clear and unambiguous. The suggested qualification that there was a limiting factor that the garden or grounds had to be required for the reasonable enjoyment of the dwelling was not present in the statutory language. The correct approach to determining whether land formed part of the grounds of a property involved looking at all the relevant facts and circumstances and weighing up the competing factors and considerations, where they pointed in different directions, in order to reach a conclusion. That was, essentially, an evaluative exercise: Hyman and others v Commissioners of HM Revenue and Customs [2022] EWCA Civ 185; [2022] EGLR 17 applied.
There was no basis for applying a two-stage test in determining whether land was inherently incapable of being “grounds” of a dwelling. The multi-factorial analysis endorsed in Hyman should simply be applied. As in Hyman, the UT was reluctant to give a general definition of “grounds” in section 116(1)(b). That would unnecessarily complicate the issue by requiring identification of the criteria which should be applied in determining whether land was inherently incapable of falling within the meaning of the word “grounds” of a dwelling.
(2) The phrase “residential property” was part of the statutory context, and any words in a statute should be construed in context. However, that did not require an ordinary English word, such as “grounds”, to be given an extra-statutory gloss or some form of special meaning. Contrary to the appellant’s submission, “grounds” did not have to be “residential” in nature or have a “residential” purpose insofar as that was said to add anything to the requirement that they be grounds “of” a dwelling.
The authorities clearly established that when, as in this case, a tribunal was required to carry out an evaluative assessment, the question of the weight to be attributed to various factors and considerations was a matter for the fact-finding tribunal and not for an appellate tribunal, unless the decision was one which no reasonable tribunal could have reached on the evidence. The position was different where a particular factor which the tribunal had taken into account was in law irrelevant, or the evaluation had failed to take into account a factor which was in law relevant: WM Morrison Supermarkets PLC v HMRC [2023] UKUT 20 (TCC) considered.
(3) The FTT had relied on an irrelevant factor in so far as it took into account the basis of the initial SDLT return in determining whether the woodland formed part of the grounds. It had acted in a procedurally unfair way by referring to and apparently relying on its own views as to the likely position in relation to planning consent and rateable valuation, without giving the parties any opportunity to make submissions on those issues. The FTT also erred in failing to consider or mention the oral evidence given on behalf of the appellant. Those errors were material and the FTT’s decision would be set aside: Degorce v HMRC [2017] EWCA Civ 1427, Davis & Dann Ltd v HMRC [2016] EWCA Civ 142 and Michael and Bridget Brown v HMRC [2022] UKUT 298 (TCC) considered.
In all the circumstances, the UT would remake the decision. As a matter of principle, it was not the right approach to lay down some sort of minimum criteria for land to be grounds. Precedent, principle and practical considerations supported the conclusion that accessibility was a factor to be taken into account by the FTT in its evaluative exercise, but difficulty of access did not mean that the land could not be part of the grounds of the dwelling. It was a countervailing factor, amongst others, which the FTT was entitled to take into account.
(4) 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 the grounds or use the grounds, for example under planning or environmental law, without them ceasing to be grounds of the dwelling.
Section 116 was concerned with characterising property either as residential property on the one hand, or non-residential property on the other. That characterisation applied generally for the purposes of SDLT; not merely to the availability of one form of relief against tax. Land did not cease to be residential property merely because the occupier of a dwelling house could do without it. Weighing up all relevant factors, the woodland formed part of the grounds for the purposes of section 116(1)(b).
Patrick Boch (instructed by Cornerstone Tax) appeared for the appellant; James Henderson and Calypso Blaj (instructed by the General Counsel and Solicitor to H M Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
