HMRC has won a First Tier Tribunal (FTT) appeal over a disputed stamp duty land tax (SDLT) bill related to whether the property was residential or not
Max Austin, Reporter, Accountancy Daily 2022-23
The appellant, James George Gibson, appealed against a closure notice issued by HMRC last year, which was in the sum of £83,000 related to SDLT.
It was issued to Gibson about a property called Doe Bank Manor, which was purchased for £1,595,000 on 10 January 2019.
Gibson, and his wife and children, were in occupation of the property on 27 November 2018 but for several reasons, the completion date was delayed to January 2019.
The property comprised of a six bedroom house, a double garage with an office above, and a two bedroom self-contained barn with two bathrooms, open plan living, dining and kitchen area. It also contained two stables, and a paddock of approximately two acres.
HMRC concluded that the residential rate of SDLT applied to the property acres in total and that the use of the property was wholly residential at the date of acquisition.
An SDLT return was filed on behalf of Gibson on the basis that the property transaction was ‘mixed-use’ and the total amount of tax due was calculated at £69,500. No claim for multiple dwellings relief (MDR) was made.
On 7 February 2020, Gibson confirmed that no consideration was received for sheep grazing on the paddock and on 10 March 2020, he emailed HMRC to confirm that farmers had used the land for the previous four years.
HMRC later issued a letter concluding that the land ‘consisted entirely’ of residential property and correspondence was then exchanged.
It then issued a closure notice in terms of Schedule 10 of the Finance Act 2003 (FA 2003) concluding that the property was residential and that higher rates of SDLT applied, representing an increase of £83,500 to £153,000.
The property had at some time previously contained a series of farm buildings and a farmyard, but these had fallen into a state of disuse. The 0.5 acres which contained the buildings were separated from the paddock by a fence.
It also had a market garden, which was created on 0.5 acres, to use the paddock for rearing and grazing animals.
On visiting the property before purchase and also contained within the photographs in a brochure were grazing sheep which confirmed to Gibson that the Paddock was being used for grazing sheep, an activity he wished to continue.
CHR Ventures Ltd and Paul and Rosemary Hobday, adjoining proprietors of the property, formalised an ‘ad hoc grazing arrangement’ about the paddock.
The agreement stated that the land had been used for grazing for the previous four years and had been used by other local farms before that. This agreement was to subsist until the completion of the sale to Gibson.
On 20 December 2020, Gibson argued that the property was eligible for MDR as both the house and the barn had their own kitchens, bathrooms and separate water and electricity supplies. They also had their separate addresses registered with the local council.
The issues before the FTT were whether the property was wholly residential or whether parts of the property, including the paddock, were non-residential. Secondly, whether Gibson was entitled to claim MDR.
He further argued that the paddock had been historically used for separate agricultural use and that planning had been ‘very strict’ about making sure this distinction continued.
HMRC submitted that, at the effective date of the transaction, the property consisted entirely of residential property.
It further argued that the grazing of animals was carried out informally and was of benefit to Gibson, as it kept the land in a well-maintained state supporting the rural character of the premises. Therefore, the paddock was ‘not actively and substantially exploited’ on a commercial basis.
Judge Gemmell WS said: ‘I do not consider that the paddock had a self-standing function, namely a commercial purpose being the provision of grazing or farming and there was no evidence it was exploited regularly. Weighing up the relevant factors, there are insufficient reasons that the paddock could convert the property to mixed residential and non-residential use.’
With the second ground of appeal, HMRC argued that Gibson was out of time to make a valid claim for MDR, having been made 12 months after the filing date.
Gibson had also failed to submit any evidential basis which could satisfy the requirements for MDR, other than to claim that there were two properties with their own kitchens and bathrooms.
The FTT considered that Gibson had failed to amend his SDLT return to include a claim for MDR within the statutory time limit. Thus, his appeal was dismissed.