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Horse galloping AccountingWEB HMRC gallops to victory in SDLT tribunal ruling
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HMRC gallops to victory in SDLT tribunal ruling

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Another taxpayer has failed to convince the FTT that a grazing agreement over a paddock rendered the purchase of a residential property mixed-use for SDLT. Anti-avoidance legislation in the Spring Budget which left mixed-use relief untouched will do nothing to bridle the surge of similar cases reaching the tribunals.

5th Apr 2024
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Jessica Harjono and Yusdi Santoso purchased, in a single transaction, a barn conversion comprising three acres of land. Approximately half of that land (1.5 acres) was a paddock, with easy access via a gate from the garden of the house. Another gate faced directly onto the road.

The taxpayers filed a stamp duty land tax (SDLT) return applying non-residential rates on the basis that the property was not entirely residential, ie it was mixed-use, due to a commercial grazing agreement over the paddock.

The contract was a simple two-page document that had been signed by both parties before the date of completion but left undated. HMRC's initial argument centred around the date on which the grazing agreement began, with the taxpayers claiming this was before the effective date and HMRC contesting that claim.

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Replies (10)

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By Justin Bryant
05th Apr 2024 12:14

It's pretty obvious that the grazing licence was signed before completion solely to try to avoid SDLT. I'm not sure why that was not elucidated in cross-examination (perhaps the judge was too polite or discreet to ask the question himself as to who first had the idea to claim the SDLT mixed-use rate and when). Not that it would have changed the decision of course. The judge was clearly wrong to find that the grazing agreement was an encumbrance, as such contractual licences are not land interests binding on third parties (c.f. proprietary interests binding on the land).

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Replying to Justin Bryant:
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By FactChecker
05th Apr 2024 13:32

It seems to me (despite not being a property specialist nor a lawyer) that there's a simple solution which would not be difficult to put into law and would be wholly fair:

* Make it a baseline requirement for any mixed-use rate claim that there had to be a Covenant registered under the main Property's Land Registry Charges (to the effect of the claimed 'other use' being granted in perpetuity).

In the above case, this would mean the Property owner having to accept that the two parts could never be re-united as one (at least without expensive effort) ... so, if the facts are not unambiguous in the first place, the owner simply has a choice to make (broadly save money now or make more later)?

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Replying to FactChecker:
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By Justin Bryant
05th Apr 2024 13:58

That makes no sense at all.

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Replying to Justin Bryant:
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By FactChecker
05th Apr 2024 15:16

Well, with the previous caveats still in place (so I may well be talking b*llocks), I was trying to suggest that in the case above:

* if there was a Covenant stating, say, that the specified 1.5 acres was a paddock and can only be used as a paddock for grazing horses, and that the rent chargeable to a 3rd party for use of the paddock be capped at £600 p.a. - all in perpetuity - then my proposed change to the rules for mixed-use SDLT would be automatically approved here;
* whereas if such a Covenant was not put into place (say within 1 month of purchase) then the mixed-use SDLT would be automatically denied.

The former scenario brings a reduction in SDLT but a likely reduction in value of the overall property; whereas the latter brings no SDLT reduction but leaves property value unaffected.

FWIW I've certainly seen charges of similar Covenants on Deeds at Land Registry (including a weird restriction on my own house dated back to the 1830s) and believe they can be overturned - but with effort and at cost, which are not phrases that those trying to pull a fast one generally find endearing.

I thought it might bring a touch of symmetry to the table ... but if it falls at the first hurdle (which it may well do), feel free to enlighten me - I truly enjoy learning.

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Replying to FactChecker:
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By Justin Bryant
05th Apr 2024 16:26

The whole idea is misconceived and you should simply forget it. Mixing up land law/admin. and tax law/admin. like that is not a sensible thing at all (it's hard to think of anything less sensible). Both are complicated enough on their own as it is.

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By Paul Crowley
06th Apr 2024 20:30

An undated agreement magics into view, just in time to save tax
Why was it undated? Because the parties knew that to knowingly backdate a document is fraud.

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Replying to Paul Crowley:
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By Justin Bryant
08th Apr 2024 08:52

I think it all happened in advance of completion per my above comment.

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Replying to Paul Crowley:
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By richard.snape
08th Apr 2024 10:00

Wouldn't claiming an untrue earlier date in court present a similar risk of perjury. Or does FTT not count as court.

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By johnjenkins
08th Apr 2024 09:45

I genuinely like your humor Amy. This was always going to be a one horse race.

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Replying to johnjenkins:
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By Amy Chin
08th Apr 2024 11:02

Thanks!

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