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Tribunal rejects mixed use relief argument but allows SDLT appeal on the basis that multiple dwellings relief is available

25 January 2023. Published by Alexis Armitage, Senior Associate

In Daniel Ridgway v HMRC [2022] UKFTT 00412 (TC), the First-tier Tribunal (FTT) rejected the taxpayer's mixed use relief argument on the basis that the anti-avoidance provisions in section 75A, Finance Act 2003 (FA 2003) applied, but allowed the taxpayer's appeal on the basis that multiple dwelling relief was available.

Background

Daniel Ridgway (the Appellant), was living in Jersey. He was separated from his wife and as his son was due to attend a school in Oxford in 2018, he wished to purchase a home in Oxford in order to be able to spend time with his son when he started school. 

In 2017, the Appellant became aware that two properties, known as Crick Road and The Old Summer House in Oxford, were for sale. The two properties, which were owned by a married couple, abutted each other but had separate titles and land registrations. There were several bidders for the properties. The Appellant wished to outbid the other potential purchasers and took advice from his solicitor on whether any SDLT savings could be made which would enable him to increase his offer for the properties. 

The Old Summer House had previously been used as an artist’s studio and the Appellant was advised that if one of the properties was in commercial use at completion, mixed use relief from SDLT would be available, in accordance with HMRC’s then published guidance contained in its Stamp Duty Land Tax Manual (at SDLTM00365). 

The Appellant was involved in finding Vine House Studios, a photographic studio business, to take a commercial lease of and occupy The Old Summer House as a studio for 9 months, two weeks before completion. The lease restricted the use of The Old Summer House to commercial use, prohibited use as a dwelling and prohibited sub-letting. Following the granting of the lease, the Appellant completed the sale and signed and filed an SDLT return claiming mixed use relief within the then 30-day statutory time limit. 

HMRC enquired into the return just before the end of the statutory period and subsequently issued a closure notice some 3 years later, denying the Appellant mixed use relief on the ground that the properties were residential properties within the meaning of section 116, Finance Act 2003. HMRC assessed SDLT at the then residential rates without regard to the availability of multiple dwellings relief because no claim had been made for that relief before the end of the 12-month period for amending a return. 

The Appellant appealed HMRC's decisions, as well as the statutory interest charged on the unpaid SDLT, to the FTT. 

FTT's decision

The FTT dismissed the claim for mixed use relief but allowed the appeal on the basis that multiple dwelling relief was available.

In determining whether mixed use relief was available, it was necessary to consider whether The Old Summer House constituted residential property or non-residential property, within the meaning of section 116(1)(a), Finance Act 2003, at the effective date. 

The FTT relied on the guidance provided by the Upper Tribunal (UT) in Keith Fiander and Samantha Brower v HMRC [2021] UKUT 0156, at paragraphs 47 and 48, which requires  consideration of all the facts and circumstances, including the physical attributes of and access to the property concerned. The UT confirmed that there is no “exhaustive list” of all relevant factors to be taken into consideration and that the test is an objective one to be applied to the particular facts in each case. 

Looking at the physical attributes of The Old Summer House, the FTT concluded that, although not ideal, it would not be impossible to use it as a residential dwelling. In addition, following Fiander, the FTT also considered the existence and terms of the commercial lease granted to Vine House Studios and the restrictive covenants contained in that lease, which prevented the property from being used as residential accommodation. The lease was in place two weeks before the effective date. If a person sought to use the property for residential purposes at the effective date, there would be a breach of the terms of the lease which would result in forfeiture of the lease and the person seeking to occupy the property as a residential property would be liable to damages and/or an injunction. 

In the view of the FTT, the terms of the lease and the consequences of any breach of those terms, rendered The Old Summer House not “suitable for use” as a dwelling at the effective date. However, despite this finding, the FTT concluded that mixed use relief was not available to the Appellant as the anti-avoidance provisions in section 75A, Finance Act 2003, applied for the reasons set out at paragraph 51 of the FTT's decision. In particular, the Appellant intended to reduce his liability to SDLT to enable him to pay more for the properties in order to out–bid the other potential purchasers and the grant of the lease was a pre-condition of the sale of The Old Summer House.

However, the FTT concluded that SDLT should be assessed on the basis that multiple dwellings relief was available, notwithstanding HMRC's argument that the Appellant was out of time to submit such a claim. The FTT dismissed the Appellant's appeal against statutory interest on the unpaid SDLT.  

Comment 

Having carefully structured the purchase of the two properties in reliance on HMRC's then guidance, the Appellant was no doubt both surprised and disappointed when HMRC decided to challenge his self-assessment based on guidance which it had altered after the purchase of the properties. However, in excusing the strict time limit for making a multiple dwellings relief claim, the FTT may have been influenced by a desire to lessen the otherwise harsh consequences of its decision.

The decision also provides useful guidance on how the FTT might apply the anti-avoidance provisions contained in section 75A, Finance Act 2003, in the context of a claim for mixed use relief.

The decision can be viewed here.

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