Anne-Marie Hurst purchased a 16th century manor house in August 2021 for £1,800,000. An SDLT return was submitted, with the payment due based on Table B of FA 03 s.55, meaning Hurst considered the property to be a ‘mixed use’ property, subject to considerably lower rates of SDLT.
HMRC enquired into the return in April 2022 and issued a closure notice in August 2022, concluding that the property was in fact purely residential and assessing additional SDLT of £47,750. Following a HMRC review, Hurst appealed to the first tier tribunal (FTT) - as discussed recently on Any Answers. Despite being nine days beyond the time limit to appeal, HMRC did not object and the FTT were content to admit the appeal.
Mixed use
Hurst’s argument was that at the effective date of the transaction (EDT) the property had been used as a hotel, inn or similar establishment (HISE), which HMRC disputed.
Further, Hurst also argued that a meadow forming part of the property did not fall within the grounds of the residence, as it was used by a farmer under a lease; HMRC again disagreed.
Use as a HISE
While accepting that the property was suitable for use as a dwelling, and so initially within s.116(1), Hurst believed that s.116(3)(f) & (4) also applied at the EDT, due to the property being used as a HISE. This would mean that the suitability for use as a dwelling would become moot and allow SDLT to be calculated at the non-residential rates.
In considering the correspondence between Hurst and HMRC, the FTT noted that much of Hurst’s evidence focussed on the business she operated/intended to operate following her acquisition. Given this was largely irrelevant, with the use at the EDT being the crucial consideration, the FTT’s focus was therefore on the previous owners’ activities.
These activities were not overwhelmingly commercial; therefore, the FTT adopted a multi factorial approach when considering whether the property had been used as a HISE at the EDT.
Serviced accommodation
Supporting Hurst’s position was that the property had been actively marketed as serviced accommodation, rather than an ‘AirBnB’ type property. Further, the services actually offered, including daily room cleaning and meals, were indicative of a HISE; customer reviews praised the level of service received by guests and were consistent with reviews received by a small hotel.
Alterations had also been made which would be unnecessary or excessive for a dwelling, such as a commercial kitchen and a fire detection system.
However…
On the other hand, the property had not been sold with the benefit of business operations/infrastructure, which were found to be minimal regardless. No evidence of actual lettings around the EDT could be provided, although lettings had taken place prior to that. With regard to the alterations, these could be seen to be indicative of an intention for commercial use, but were not evidence that such commercial use actually occurred.
Finally, business rates were not paid on the property, although this only proved that less than 50% of the building was used for the business and that a maximum of 6 guests stayed at any one time.
A narrow margin
The FTT ultimately found that, on balance, commercial use with sufficient permanence and continuity existed at the EDT, particularly considering Covid restrictions in place at the relevant times.
The property therefore fell within s.116(3)(f) and so its suitability for use as a dwelling could be disregarded as per s.116(4).
The appeal was allowed, but for completeness the FTT went on to consider the remaining disputed point.
Meadow
Hurst had argued that the meadow which was transferred as part of the property had been used by a farmer under a commercial lease at the EDT and therefore did not fall within the definition of grounds in s.116(1)(b), making the overall supply mixed use.
HMRC argued that there was no evidence of any such commercial use and that the arrangement was instead a ‘barter of convenience’.
Having considered the lack of a formal agreement between the previous owners and the farmer, the FTT agreed with HMRC that no commercial activity existed; the farmer was merely able to use the field for grazing in exchange for maintaining it. The field therefore remained within the definition of grounds as per s.116(1)(b).
Had Hurst not already succeeded on the HISE argument, the appeal would therefore have been dismissed.
Conclusion
The FTT commented that they had allowed this appeal on the “finest of margins”; HMRC may therefore be emboldened to attempt an appeal to the upper tribunal.
Further, the FTT noted the facts of this case to be “almost unique”, limiting the benefit of the decision to other taxpayers in similar situations.
