Suterwalla & Anor. v The Commissioners for HMRC
[2023] UKFTT 450 (TC)
Jessica Harjono & Anor v The Commissioners for HMRC
18 March 2024
[2024] UKFTT 228 (TC)
First-tier Tribunal
A couple bought a house with a paddock. They rented the paddock to someone for grazing before even owning it. The taxman said the whole property was residential, so they owed more tax. The couple argued the paddock's rental made it commercial, not residential. The judge said the paddock was still part of the house, even though rented out, because of other factors like size and location. So the couple had to pay the higher tax.
Key Facts
- •Appellants purchased a property (Culverton Barn) comprising 3 acres, including a 1.5-acre paddock, for £2.7 million on December 20, 2021.
- •A grazing agreement for the paddock was signed before completion but dated after completion.
- •HMRC issued a closure notice increasing SDLT payable from £124,500 to £237,750, arguing the property was entirely residential.
- •Appellants argued the grazing agreement constituted commercial use, rendering the property mixed-use and eligible for a lower SDLT rate.
- •The paddock was fenced, elevated from the house and garden, and registered under a separate title.
- •The grazing agreement was with Zoe Donnelly for £50/month, later replaced by other arrangements.
Legal Principles
SDLT is charged on land transactions; the effective date is the completion date. The rate depends on whether the land is entirely residential or mixed-use.
Finance Act 2003, sections 42, 43, 44, 55, 116, 119
Residential property includes land forming part of the garden or grounds of a dwelling. Determining this involves a multifactorial test, weighing various factors without any single factor being determinative.
Finance Act 2003, section 116(1)(b); Hyman & Ors v HMRC [2022] EWCA Civ 185; How Development 1 Ltd v HMRC [2022] UKUT 00084; Fitzjohn’s Avenue v HMRC [2024] UKFTT 28
The nature of the property for SDLT purposes is determined at the point of completion, not afterward.
Ladson Preston and another v HMRC [2022] UKUT 301; Kozlowski v HMRC [2023] UKFTT 00711
Commercial use of land is a factor but not decisive in determining whether it forms part of the grounds. The ultimate use of the land and the context of any commercial agreement are crucial.
Kozlowski v HMRC [2023] UKFTT 00711; How Development 1 Ltd v HMRC [2022] UKUT 00084; Faiers v HMRC [2023] UKFTT 297
Outcomes
Appeal dismissed.
Despite the pre-existing obligation to enter into a grazing agreement, the Tribunal found the paddock formed part of the grounds, rendering the property entirely residential. The grazing agreement, while on arm's length terms, did not outweigh other factors indicating residential use. The Tribunal rejected the argument that the agreement's commercial nature automatically excluded the paddock from the definition of 'grounds'.