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shaft to light | accountingweb | SDLT (AGAIN) Ventilation shaft does not restrict residential use

SDTL: No shaft of light for mixed-use claimant


A developer was unable to convince the first tier tribunal that an airshaft and a workshop made a property mixed-use for stamp duty land tax purposes.

20th Feb 2024
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Property developer 39 Fitzjohns Avenue Ltd (FAL) purchased a substantial building and correspondingly substantial grounds with the intention of redeveloping the site.

FAL paid £19,750,000 for the property and initially incurred stamp duty land tax (SDLT) based on the property being wholly residential. 

However just under three years later FAL’s agent, Cornerstone Tax 2020 Ltd (Cornerstone), submitted an overpayment relief claim on their behalf on the basis that the acquisition had been mixed-use. This meant that the consideration should have been charged at the general rates ranging from 0% to 5%, rather than the flat 15% applying to non-natural persons acquiring residential property. A refund of £1,899,250 was requested.

Residential or mixed?

HMRC refused the claim and this decision was upheld following review. FAL therefore appealed to the first tier tribunal (FTT) that the property was mixed-use due to:

  1. the presence and commercial use by National Rail/Thameslink (NRT) of a ventilation tunnel connected to a shaft that protruded onto the property, and 
  2. the presence within the main building of a workshop that was used commercially by a third party at purchase.

In order to be considered mixed-use, part of the land would need to have fallen outside the definition of residential property/a dwelling as per FA 2003 s116 and Sch 4ZA para 18

Paul Godfrey, a former director of FAL, provided oral evidence.

Ventilation network

The FTT first considered the ventilation shaft connecting the railway tunnel to the fresh air. This shaft opened onto part of the grounds of the property and was roughly 3m in diameter, surrounded by a shoulder-height brick wall and a spike-adorned palisade fence of roughly 1.7m.

Undeterred by these security measures, Godfrey had surmounted them and estimated the shaft fell to around 10m below ground level.

The property was part freehold and part leasehold, but the shaft itself was excluded from the lease acquired by FAL, with NRT retaining use of and access to the shaft (among other rights). The land around the shaft was however within FAL’s leasehold.

Active use

FAL argued that NRT had made historic and ongoing active commercial use of the land surrounding the shaft, meaning part of the land was used by a third party for a purpose unconnected to the house and so the land was not part of the grounds. The active commercial use was due to the frequency of trains “using” the ventilation shaft, the noise generated and the fact NRT had access to the land whenever they wished.

HMRC had countered that the use or function of the shaft was passive, not active, and so not enough to make the surrounding land cease to be part of the grounds; the shaft was merely a structure on the grounds. A similar FTT case, Faiers, had found that electrical poles and cables did not remove the land they were on from the definition of residential grounds.

Negligible impact

The FTT first determined that the land would be fully residential without the shaft. So the question was, did the shaft remove part of the land from the grounds?

The shaft performed an important function, but it did so purely by existing – its function was therefore entirely passive. The shaft was of an insignificant size with regard to the land as a whole and, while NRT had the right to access the shaft via the grounds, it seemingly hadn’t actually done so in some time, therefore the impact was negligible and would have amounted to a right of access at best regardless.

The noise generated was no worse than the typical levels for properties in and around a railway and Godfrey’s claim that the lease forbade the addition of buildings to the land was found to be an overstatement, as while the lease did require permission for additions it also said the permission should not be withheld “capriciously or vexatiously”.

Unworking workshop

The second ground of appeal was based on the assertion that the property was partly occupied at completion by some small businesses using space for a workshop and that this arrangement had persisted for a few days following completion. 

However FAL was unable to provide any evidence that a tenancy was in place, nor that rent had been charged. Further, the contract for sale plainly stated that the property had been sold with vacant possession.

Dismissed in full

The FTT therefore found that the whole of the property and grounds covered by the lease fell within the definition of residential property as per s116. There was no basis to treat the property as mixed-use and so the appeal was dismissed in full.

Replies (2)

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By Justin Bryant
20th Feb 2024 13:42

It's only because there are so many dud FTT judges (especially re SDLT) that taxpayers chance their arm like this in the first place (and why wouldn't you when there's £1.9m of SDLT at stake and no tax penalty or HMRC costs downside?).

Fortunately this FTT judge got it right for a change.

Thanks (1)
By FactChecker
20th Feb 2024 22:19

Given that the case, as described above, was so straightforward ... the Director's evidence appears to have needed to (a) misdirect by omission on the first ground and (b) create a 'new truth' with regard to the second ground.

So what exactly is thought to be newsworthy here, other than yet another instance of hope/greed attempting (and failing) to overcome the obvious facts?
Cornerstone Tax 2020 Ltd seem to be a rather small OMB - so do we know on what fee basis they operated here (bearing in mind Justin's comments on penalties/costs)?

Thanks (2)