Taxpayer unsuccessfully trots out mixed-use claim

As a self-confessed non-specialist in stamp duty land tax (SDLT), I find it increasingly bewildering how many cases proceed to the tribunals involving multiple-dwellings relief (MDR) and mixed-use properties. Often these have required an amendment to (what turns out to be) a correctly calculated original return in an attempt to secure a repayment. There is, reasonably, a concern about taxpayers being led astray by what, again to the non-specialist, might seem to be spurious claims – not unlike the research and development (R&D) shenanigans of some in recent years. 

And isn’t that the point? Most of us would probably raise our hands to admit a lack of reasonable, let alone detailed knowledge of SDLT issues – after all, it’s a lawyers’ tax, isn’t it? From those specialising in SDLT, I get a feeling of an increasing sense of frustration at taxpayers paying for advice that turns out to be incorrect. There are always grey areas in tax that need to be examined, as any of us can see from some of the questions in Any Answers relating to what might otherwise be seen as relatively straightforward issues. As HMRC frequently says, “If it looks too good to be true, it probably is.”  Taxpayers have discovered that interest and penalties may increase the original liability considerably.

Seeking a refund

The background to this case is that Sangeeta Modha bought Firs Farm, Illston in Leicestershire for £1,440,000 on 12 April 2018, paying SDLT of £130,950 in connection with the acquisition of a dwelling.

On 30 April 2019, Modha submitted an amended return seeking a refund of £69,450 on the basis that she had in fact acquired a mixed-use property, being the dwelling, garden, stables, manège (riding area) and paddock, plus non-residential land (a substantial field of some eight acres).

HMRC refused the claim, arguing that the field was a part of the grounds of the dwelling, and issued a closure notice confirming that SDLT was due on the entire consideration as a dwelling.

The SDLT rate applying to mixed-use acquisitions in 2018/19 was:

First £150,000 @ 0%

Next £100,000 @ 2%

Balance @ 5%

Hence, a total charge of £61,500 per the amended return on the consideration of £1,440,000.

At the time, the deadline for submitting a land transaction return was 30 days (now 14 days) after the effective date (usually the date of completion). Modha’s amendment then had to be filed within 12 months of that date, which it was.

SDLT on dwellings is charged under Table A of section 55 Finance Act 2003.

Field studies

The first tier tribunal (FTT) considered the approach to be taken following previous decisions “to undertake an evaluative exercise to determine whether the land in question meets the ordinary meaning of ‘garden and grounds of a [dwelling]’ or ‘to be occupied or enjoyed with a dwelling’.”

Using the principles in the case of Faiers vs HMRC [2023] UKFTT 212 (TC), the FTT found the following.

1. Layout/proximity: The field is at the bottom of the garden, manège and paddock but is contiguous with them.
2. Extent: As indicated, above 9–10 acres is significant but as is apparent other houses [locally] also have fields. It is a rural location.
3. Legal factors/constraints: There was nothing to prevent the appellant using the field with the dwelling on 12 April 2018.

As was determined in the case of Withers vs HMRC [2022] UKFTT 433 (a rare success for the taxpayer), there needs to be a purpose separate from and unconnected with the dwelling, which will generally be commercial.

Here, the field was in common ownership; it was not used and had no function unconnected with the dwelling. On the date of purchase, there was no commercial use capable of giving it a separate purpose. With no separate function there is no basis on which to conclude that it was anything other than available for use with the dwelling and thereby part of the grounds. 

Owners of neighbouring properties had been given pre-prepared letters to complete and present as evidence. What they failed to provide was sufficient evidence to contradict the particulars of sale, which variously described the land as a “field” or a “paddock”. The FTT concluded that the land had not been used as a paddock by the previous owners.

Similarly, an agreement for a neighbour to manage the land in return for the hay yield was not a commercial arrangement, and the field could have been used as a play area or vegetable garden.

Anti-avoidance

Some of these questions will undoubtedly be clarified when Jeremy Hunt gets around to introducing the long-awaited anti-avoidance on both MDR and mixed use. That might be as early as the forthcoming Autumn Statement.

We are likely to see a requirement to apportion consideration, such that the residential element is charged at residential rates and the non-residential charged at (strangely!) non-residential rates. I’ll go out on a limb here – head above the parapet stuff – and say that as a non-specialist, that seems to be a pretty reasonable solution, accepting that the lands tribunal might find itself a little busier with valuations, and the tax tribunal hearing list a little shorter.