The Upper Tribunal (UT) confirmed that a paddock acquired as part of the purchase of a dwelling did not constitute part of the grounds of the dwelling for the purposes of Section 116(1) (b) of the Financial Act 2003.
Background:
Mr. and Mrs. Suterwalla purchased a property in December 2020. The property was a seven-bedroom family house with an indoor swimming pool, gardens (which included a pavilion), a tennis court, and a paddock. On the Stamp Duty Land Tax (SDLT) return they noted that the property was a residential and non-residential mixed-used property as they granted a grazing lease of the paddock for one year to a neighbour for a rent of £1,000 per annum on the day of acquisition.
As it was declared as a mixed-used property, the SDLT was thus chargeable at a lower rate. HMRC opened an enquiry in August 2021 and issued a closure notice increasing the SDLT due from £169,500 to £330,750 on the ground that the property was not mixed-use but entirely residential. Mr. and Mrs. Suterwalla appealed to the First-tier Tribunal (FTT) which ruled in their favour. HMRC however appealed the decision.
Decision:
The UT dismissed HMRC’s appeal. The UT disagreed with the argument that the fact that the claimants would have preferred buying the property without the paddock was relevant. The UT then turned to different factors and whether the FTT had taken them into consideration correctly. The fact that the paddock and house have separate titles at the Land Registry and that the paddock was not visible from the house or gardens, the single small access gate to the paddock from the property played an important role. The UT ruled that it could not be said that the FTT’s conclusion in the decision is “rationally insupportable”. Consequently, the UT concluded that the FTT identified and adopted the correct approach.
The UT noted that the FTT should have applied the reasoning in Ladson Preston. It commented on the relevance of a post-completion grazing lease. The Tribunal noted that the “FTT should have focused its assessment on whether the paddock was part of the grounds of the house at the completion of the purchase of the property. As the grazing lease in this case did not exist at the time of completion, it follows that it should not have formed part of the analysis of the nature of the chargeable interest acquired at that time.” It concluded by noting that “Our conclusion does not mean that a grant of a grazing lease (or other interest) after completion can never be taken into account. The subsequent use of land may be evidence of its nature or character at the time of completion. For example, the grant of grazing lease by new owners after completion may formalise an informal arrangement between the previous owner and a neighbour which allowed horses to be kept and grazed on the land or be a reinstatement of historic commercial use.”
Implications:
This case is a good reminder that timing is crucial in calculating SDLT relief. Although decisions on non-residential or mixed-used SDLT are heavily fact-dependent, this decision highlights the particular weight tribunals attribute to certain factors.
Despite the UT disregarding the grazing lease in its analysis, its comments on the relevance of Ladson Preston and the post-completion grazing lease provide useful insights. This orbiter comments might in fact be the most important part of this judgement.