Never mind the paddocks – HMRC wins FTT case regarding meaning of residential property


Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Myles-Till v HMRC [2020]

In January 2017 the taxpayer acquired a property for just over £1.3m. The property was comprised of:

3 acres of land;

A three-bedroom house A detached double garage;

A garden to the rear;

A grass covered field known as the paddock

The question here was whether the paddock was non-residential land and, were this the case, then the entire acquisition ‘consist[ed] of or include[d] land that is not residential property’.

The result being that the transaction would be subject to the lower rates set out in Table B (non-residential).

Pretty vacant?

The paddock was about 1.1 acres in size and was situated behind the rear garden and was enclosed by a rail fence.

Up until about 1983, this piece of land had been part of the farm next door. However, for many years – and at the time of the relevant sale – the land was part of the current property.

The paddock was covered in grass and, as such, potentially could be used for grazing animals.

Although there is no evidence it was used as such, it led to this being described as ‘agricultural land’ by the expert witness in this case.

Anarchy in the Table A

As stated above, the point that the taxpayer was trying to establish was that the land was not within Table A, which applies higher rates of duty to ‘residential property.’

Residential property is defined as:

(a) a building that is used or suitable for use of a dwelling, or is in the process of being constructed or adapted for such use; and

(b) land that is or forms part of the garden or grounds of a building within paragraph (a)….

As such, the discussion in this case was whether the land in question formed part of the garden or grounds at the time of the transaction.

God Save the FTT

What indicates that a piece of land had become part of the ’grounds’?

The Judge pointed out that where a dwelling is sold with a piece of adjoining land does not mean the land is part of the grounds. Indeed, the SDLT framework is clearly set up to deal with single transactions where the subject matter is mixed use.

The judge also resisted HMRC’s argument that it is sufficient for the land to be available to the landowners for whatever purpose they like.

For commonly owned land to be considered as part of the ‘grounds’ then it must ‘functionally [be] an appendage to the dwelling, rather than having a self-standing function’.

The judge went on to say that ‘use for a ‘commercial purpose’ is a good and (perhaps the only) practical example of commonly owned adjoining land that does not function as an appendage’.

Further, the judge rejected the taxpayer’s assertion that the test was ‘whether the land could be detached without substantial deprivation to the reasonable enjoyment of the dwelling’. His view was that this was too restrictive a test.

In the end, he was not convinced by the limited evidence that the paddock was agricultural land or that it had any self-standing function.

As such, the FTT’s view was that the entire land transaction fell within Table A as a residential transaction.

SDLT vicious?

The case just goes to show, once again, the complexity of the SDLT provisions and that whether something is residential or non-residential will be a matte of fact and degree.

Where a purchaser is acquiring a number of different parcels of land as part of a single transaction we would suggest they, or they advisers, obtain specialist SDLT advice.

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