HM Revenue and Customs v Lunn
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 November 2009 |
| Neutral Citation | [2009] UKUT 244 (TCC) |
| Date | 19 November 2009 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2009] UKUT 244 (TCC).
John F Avery Jones, Adrian Shipwright.
Owain Thomas (instructed by the Solicitor to HM Revenue and Customs) for the appellants.
Sadiya Choudhury (instructed by Deloitte LLP) for the respondent.
The following cases were referred to in the judgment:
CartagenaVAT No. 19,454; [2006] BVC 4,062
ClampVAT No. 16,422; [2000] BVC 4,061
C & E Commrs v Zielinski Baker & Partners LtdUNKVAT [2004] UKHL 7; [2004] BVC 309
FordVAT No. 16,271; [2000] BVC 4,028
GiblinVAT No. 20,352; [2008] BVC 4,018
MilliganVAT No. 19,224; [2006] BVC 4,020
NicholsonVAT No. 19,412; [2006] BVC 4,053
Value added tax - Zero-rating - Alterations to listed building - New building in curtilage of listed building - Conditions of planning permission - New building to be used only for purposes either incidental or ancillary to residential use of main listed building - Whether separate use of dwelling prohibited by terms of planning consent - Whether use incidental or ancillary to use of main building could not be "separate use" - Value Added Tax Act 1994, Sch. 8, Grp. 6, Value Added Tax Act 1994 schedule 8 group 6Note (2)(c).
This was an appeal by HMRC against a decision of the VAT and Duties Tribunal ([2009] BVC 4058) to the effect that certain building works to a listed building were zero-rated for VAT.
The appeal concerned a new building within the curtilage of a Grade II* listed Manor near Stratford-on-Avon; the new building was physically separate from the Manor, and the freehold of both the Manor and the new building was owned by the taxpayer. The new building consisted of a ground floor and a first floor, and comprised self-contained living accommodation. The planning approval for the new building was subject to the condition that it should only be used for purposes either incidental or ancillary to the residential use of the Manor and not for commercial purposes.
HMRC took the view that the purpose of Note (2) to Grp. 6 of Sch. 8 to VATA 1994 to restrict the availability of zero-rating to separate dwellings which did not exist in a physically (Note (2)(a) and (b)) or legally (Note (2)(c)) dependent relationship with another dwelling. A requirement that the use of the building be ancillary to or incidental to the use of another building amounted to a prohibition on separate use. It was inherent in Note (2)(a) that the building referred to in Note (2)(c) would be used as a separate household. That interpretation (the "separate from" interpretation) was supported by the weight of decisions in the VAT and Duties Tribunal on similar wording of planning permissions. The decision to the contrary in Nicholson Decision 19,412; [2006] BVC 4053 was out of line with the other decisions and was wrongly decided.
The VAT and Duties Tribunal interpreted "separate use" to mean a distinct use, or use as a separate household, for example as accommodation for house guests or dependent relatives. They considered that there was no proposition of law that an incidental or ancillary use could never be a separate use. That interpretation (the "separate household" interpretation) was that contended for by the taxpayer.
Held, allowing the appeal:
1. If the "separate from" meaning of "separate use" was correct, the purpose of the Note was to prevent zero-rating unless the new subsidiary dwelling could, in accordance with planning restrictions, be used independently of the main building. A planning restriction preventing use separate from the main building would commonly apply on the creation of a "granny" annex. The planning restriction in this case appeared to be a common one, and therefore something that Parliament might have had in mind as the purpose of Note (2)(c). On the other hand, if the "separate household" meaning was correct Note (2)(c) would mean that what was (by virtue of Note (2)(a)) self-contained living accommodation must not be prevented from being used as such. The only case where this might possibly apply was where the planning permission restricted the use to holiday lets for a limited duration. It seemed less likely that the draftsman of Note (2)(c) had that in mind when referring in general terms to separate use being prohibited. Also the concept of planning considerations requiring that a dwelling containing self-contained living accommodation must not be used as such seemed unusual, and therefore it was less likely that VAT legislation would want to deal with such a possibility.
2. The context of Note (2)(c) was that it could apply only where the rest of Note (2) was satisfied, that was (a) that the dwelling consisted of self-contained living accommodation, and (b) that there was no provision for direct internal access from the dwelling to any other dwelling (or part of a dwelling). Both of those considered the separateness of the dwelling from another dwelling, and...
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