Tribunal Upholds HMRC's Decision on SDLT Classification of Leasehold Properties in Steven Bowen Case

Introduction

The First-tier Tribunal (Tax Chamber) case of Steven Bowen v The Commissioners for HMRC deals with Stamp Duty Land Tax (SDLT) implications arising from the acquisition of leasehold properties. Specifically, the case examines whether a leasehold property, The Granary, should be considered part of the grounds of an adjacent property, Old Valley Farmhouse, for the purposes of SDLT.

Key Facts

Steven Bowen appealed against a review conclusion letter which increased the SDLT due on the acquisition of two leaseholds he purchased with his wife. The transaction entailed a single contract wherein both The Granary and Old Valley Farmhouse were bought for £1,625,000. The dispute centered around whether The Granary formed part of the grounds of the farmhouse, as this classification would categorize the transaction as residential and thus subject to a higher rate of SDLT.

The Tribunal considered various aspects, such as historical use, use at the time of the transaction, legal constraints, and geographical factors. The Granary had historic connections to Old Valley Farmhouse, shared a legal lease framework, and was geographically adjacent. At the effective date of the transaction, The Granary was derelict and therefore not in use agriculturally or commercially either by itself or a third party under formal agreement.

Legal Principles

The Tribunal applied a multi-factorial approach to determine whether The Granary is part of the grounds of Old Valley Farmhouse. This approach, confirmed by the Upper Tribunal in Hyman [2021] UKUT 68 (TCC), acknowledges that no single factor is likely to be determinative. It involves considering aspects such as historical use of the land, its use at the time of the transaction, any legal constraints on the use of the property, and geographical proximity.

Crucially, the Tribunal noted that guidance related to capital gains tax (such as HS283) does not apply to SDLT as stipulated in the Court of Appeal’s decision in Hyman & Ors [2022] EWCA Civ 185. This dismissal of HMRC’s former guidelines highlights the importance of relying on legal text rather than interpretive guidelines when assessing tax matters. Moreover, the Tribunal emphasized that common ownership is a necessary but not sufficient condition for adjoining land to become part of the grounds of the dwelling.

Outcomes

The Tribunal concluded that The Granary and its surrounding land indeed form part of the grounds of Old Valley Farmhouse for SDLT purposes. This conclusion took into account the accumulation of multiple factors, particularly noting the absence of agricultural or commercial use at the effective date, the lease’s legal restrictions in support of the farmhouse use, and the geographical closeness of the properties.

Therefore, the Tribunal dismissed the appeal, upholding the closure notice which categorized the transaction as dealing with residential property and formed the basis for the higher SDLT assessment.

Conclusion

The Steven Bowen v The Commissioners for HMRC case underscores the intricacies of SDLT categorizations and the careful application of a multi-factorial approach in determining property designations. Legal professionals should note the dismissal of capital gains tax guidelines in favor of specific SDLT criteria, emphasizing the Tribunal’s strict adherence to legal statutes over interpretative guidelines. The case reaffirms that for SDLT purposes, factors pertaining to property usage, legal constraints, and geographical considerations in the context of common ownership are central to identifying a property’s tax status.