Tribunal Rules Property Wholly Residential Despite Commercial Elements - 39 Fitzjons Avenue Limited v HMRC

Citation: [2024] UKFTT 28 (TC)
Judgment on

Introduction

The case of 39 Fitzjons Avenue Limited v The Commissioners for HMRC [2024] UKFTT 28 (TC) addresses the determination of property status for Stamp Duty Land Tax (SDLT) purposes, more specifically whether a property should be classified as “mixed use” or “wholly residential”. The tribunal examines whether the presence of a railway ventilation shaft and other restrictions impact categorization, and also assesses the role of a workshop within the dwelling at the time of sale.

Key Facts

39 Fitzjons Avenue Limited (the Appellant) acquired a residential property and paid SDLT at the residential rate. Subsequently, the Appellant sought overpayment relief, claiming the property should have been classified as mixed use due to a railway ventilation shaft on the land, which is associated with commercial operations, and an alleged commercial use of a workshop within the dwelling at the time of sale.

After a claim for overpayment relief was denied by HMRC, the Appellant appealed on two primary grounds: 1) the land impacted by the railway tunnel ventilation shaft cannot be classified as part of the dwelling’s grounds and is thus not residential, and 2) the workshop in the dwelling was occupied for commercial purposes at the time of transaction.

The tribunal applied several legal principles, grounded mainly in the Finance Act 2003 and relevant case law such as Hyman v HMRC [2021] UKUT 0068 (TCC) and Thomas Kozlowski v HMRC [2023] UKFTT 711 (TC), among others. The core areas of law centered on the definition of “residential property” under section 116 of the Finance Act 2003 and the multifactorial test for whether land constitutes the “garden or grounds” of a dwelling, as established in Hyman.

Section 116(1) defines residential property as a building used or suitable for use as a dwelling, land forming part of the dwelling’s garden or grounds, or an interest in land for the benefit of such a building or land. The tribunal, reflecting on several factors, has to determine whether these grounds are disrupted by commercial elements to such an extent that the property’s primary use or character changes from residential to mixed.

Outcomes

The First-tier Tribunal found that:

  1. The presence of the ventilation shaft and its restrictions do not alter the overall residential character of the property. Despite the commercial use of the railway and encumbering rights of access, the tribunal ruled that this level of intrusion is insufficient to prevent the land from being considered residential grounds.

  2. On the second ground of appeal, the tribunal concluded that no commercial tenancy agreement for the workshop in the dwelling was in place at the time of completion. This was based on the Appellant’s failure to provide sufficient proof of a commercial tenancy or that any part of the dwelling was unsuitable for residential use because of such a tenancy.

As a result, the tribunal deemed the entire Property to be “wholly residential” for SDLT purposes and dismissed the appeal.

Conclusion

The decision in 39 Fitzjons Avenue Limited v The Commissioners for HMRC emphasizes the multifactorial approach when assessing whether property is residential or mixed use for SDLT. The detailed analysis of the presence of commercial features within the property’s land and buildings, and the intricate examination of their impact on the property’s character and use, have reinforced the established precedent. For practitioners, this case reiterates the importance of thoroughly examining the effective use, restrictions, and rights associated with a property at the time of sale to establish its correct tax categorization.

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