Bloom
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 July 2023 |
| Neutral Citation | [2023] UKFTT 628 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2023] UKFTT 628 (TC)
Tribunal Judge Ruthven Gemmell Ws
First-Tier Tribunal (Tax Chamber)
Stamp duty land tax – Purchase of house and land – Whether the house and land were wholly residential at acquisition– Yes – Whether sewage treatment plant formed part of the garden and grounds of a building – Yes – Whether covenants in title deeds amounted to a commercial agreement-no– FA 2003, s. 55 and 116 – Appeal dismissed.
In Bloom [2023] TC 08866, the First-tier Tribunal found that the presence of a sewage-treatment plant in a contiguous plot forming part of the property and the existence of covenants governing its use by adjoining properties did not prevent the land on which it stood from forming part of the garden or grounds of the dwelling. Accordingly, the whole of the land in question was residential property and the appellant’s claim for the lower, mixed-use rates of SDLT had been correctly refused.
The appellants, Mr & Mrs Bloom, purchased a large property in North London with a total land area of approx. 7.5 acres (3.04 ha). This land was registered under two titles – ‘The Paddocks’, consisting of approximately 1.9 acres (0.77 ha) immediately around the house, and a larger, contiguous area of 5.6 acres (2.27 ha) lying some two metres below The Paddocks and on which stood a sewage-treatment plant serving the appellant’s property and other neighbouring properties. Access to this from The Paddocks was by way of steps and/or an access road from the boundary of the property. The access road was used approximately four times a year by vehicles to remove the effluent.
The appellants claimed that the presence and use of the sewage-treatment plant rendered the whole of the contiguous area non-residential and hence that the lower non-residential rates of SDLT should have applied to their purchase. Having paid the full residential rates of SDLT, the appellants claimed a repayment of tax of £265,750. HMRC refused their repayment claim and confirmed that decision on review. The appellants appealed to the Tribunal.
The appellants’ grounds for their claim that the property was of mixed residential and non-residential use were:
- the presence of the sewage-treatment plant;
- the legal and practical restrictions that its presence imposed on their residential use of the land affected, particularly the ‘constant repugnant smell’ they alleged prevented their enjoyment of it; and
- the existence of the commercial arrangements under which they paid for the plant and were compensated by the owners of the other properties served by it.
Having considered the evidence and previous case law – in particular, Hyman v R & C Commrs and Faiers – the Tribunal found as follows:
- There was no quantitative limit on the extent of the garden or grounds and no requirement for it to provide reasonable enjoyment.
- Approximately 50% of the tennis court within the grounds lay within the disputed contiguous area and close to the manhole covers forming the superstructure of the plant. Given the size of the disputed area, it did not seem credible that the tennis court would have been placed so near to a septic tank if it indeed constantly emitted a repugnant smell as asserted by the appellants.
- The appellants could have or had made use of the tennis court and made partial use of the sewage-treatment plant. The whole of the disputed area was suitable for leisure use.
- There was no prior history that the disputed area had been used or occupied separately or was unconnected with the dwelling.
- The layout and extent of the property was appropriate for a large countryside property with stables, a ménage, a swimming pool, tennis court and extensive gardens and grounds in a traditional setting. When purchasing the property, the appellants had had no option but to purchase the two plots as a single package
- The sewage-treatment plant had not been used for a self-standing function. The Tribunal accepted HMRC’s submissions that the plant was an essential facility of the property or of any similar property that had no connection to mains sewage disposal.
- There was no genuine commercial agreement for use of the plant. Rather there was a restrictive covenant, providing for a method to split the maintenance costs for each of the users in proportion to the benefit each received from the plant. There was no element of profit for the appellants.
- The presence of the plant and the legal and practical restriction its presence imposed did not affect residential use of the property. All its users were themselves residential properties.
Taking into account all these factors, the Tribunal concluded that the disputed area could not be considered as subject to mixed use and the appeal therefore fell to be dismissed.
HMRC continues to win the great majority of mixed-use cases. This one has close parallels to Faiers, on which the Tribunal here placed particular reliance, where it was the presence of an electricity substation that the appellants unsuccessfully claimed rendered their property mixed-use.
The only recent successes for taxpayers have been Withers, where the property comprised inter alia agricultural land let for grazing and forestry land under the care of the Woodland Trust, and Suterwalla, which this commentator considers to have been wrongly decided.
The judgment contains a useful discussion of relevant matters, which repay detailed study.
Comment by Zigurds G Kronbergs, Senior Tax Writer, Croner-i Ltd.
Mr Patrick Cannon, Counsel, instructed by Cornerstone Tax Ltd, appeared for the appellant
Ms Fiona Man, Litigator, of HM Revenue and Customs' Solicitor's Office, appeared for the respondents
[1] The form of the hearing was by video, all parties attended remotely, and the remote platform used was the Tribunal video hearing system. The documents which were referred to comprised of a Hearing bundle of 279 pages and skeleton arguments for both parties.
[2] Prior notice of the hearing had been published on the gov.uk website with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.
[3] The Appellants, Mr and Mrs Bloom (“AB”), appealed against a closure notice issued by the Respondents (“HMRC”). The closure notice disallowed a claim for overpayment relief in the sum of £265,750 in respect of a self-assessed Stamp Duty Land Tax (“SDLT”) payment of £441,750.
[4] The SDLT payment was in respect of a property known as 24 Totteridge Common, London N20 8NE which was purchased by AB on 4 September 2015 for a price of £4,400,000 (“the Property”).
[5] The Property comprised of two registered titles one being “The Paddocks”, 24 Totteridge Common, comprising of a 6 bedroom house, cottage, swimming pool, garage, stables and equestrian facilities,(“The Paddocks”) and the other being 5.6 acres of land to the north-west of 24 Totteridge Common on which is situated a sewage treatment plant (“STP”), which facilitates the Property and 10 other neighbouring flats created in 22 Totteridge Common (“Totteridge Park”), which adjoins the Property, and all or part of a tennis court (“5.6 acres”).
[6] HMRC issued the Closure Notice on 5 November 2019 concluding that HMRC were unable to accept that the Property should be classified as mixed residential/non-residential property.
[7] A Statutory Review concluding letter was issued on 26 February 2020 upholding HMRC's decision.
[8] This application to appeal to the First-tier Tribunal was stayed behind two cases which were dismissed, and, on 20 October 2022, AB confirmed they intended to proceed with the appeal.
[9] See Appendix A
[10] See Appendix B
[11] The burden of proof is on AB to demonstrate that the Property has been incorrectly classified as wholly residential and failure to discharge the burden will result in the Closure Notice standing good. The standard of proof is on the ordinary civil test on the balance of probabilities.
[12] The parties do not dispute that The Paddocks, including the main house and cottage together with a swimming pool and equestrian facilities/menage at the Property, together with its garden and grounds on 1.9 acres of land, are considered to be residential property for SDLT purposes.
[13] The whole area of the Property was classified as residential on the SDLT return submitted on behalf of AB on 7 September 2015 and the amount of SDLT of £441,750 calculated on the purchase price of £4,400,000, in terms of section 55 of the Finance Act 2003, was not in dispute.
[14] The point at issue is whether a small part of the land (“the Disputed Area”), specifically referred to the AB's Notice of Appeal as “the sewage treatment plant” (“STP”), located within the 5.6 acres, does or does not form part of the garden and grounds of the Property for the purposes of SDLT.
[15] There were two registered titles: one for The Paddock, of approximately 1.9 acres, and the other for the 5.6 acres of land, lying to the north-west of The Paddocks, which included the Disputed Area.
[16] Despite the appeal relating only to the Disputed Area, no measurements of this area were produced. AB, in their submissions claimed that the 5.6 acres is affected by the Disputed Area and accordingly the whole 5.6 acres is non-residential.
[17] The 5.6 acres is six feet lower than the land on The Paddocks and access to it is via steps and/or a restricted use access road from the boundary of the Property.
[18] Within the 5.6 acres of land, is some or all of the tennis court created by AB and its “top” end is near to the STP. Andrew Jonathan Bloom, (“AJB”) who gave evidence, believed “but could not say with certainty” that the boundary of the 5.6 acres began at the fence of the top end of the tennis court.
[19] HMRC considered that the Disputed Area represented the footprint of the...
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