Khatoun
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 April 2021 |
| Neutral Citation | [2021] UKFTT 104 (TC) |
| Date | 12 April 2021 |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 104 (TC)
Judge Zachary Citron
Mr P Cannon of counsel appeared for the appellant
Dr J Schryber, litigator of HM Revenue and Customs' Solicitor's Office, appeared for the respondents
Stamp duty land tax (SDLT) – Purchase of freehold property giving rise to right of access to communal garden – FA 2003, s. 55, 108 – Whether linked transactions – No – Whether subject-matter included non-residential property – No – Appeal dismissed.
The First-Tier Tribunal found that the purchase of a freehold property which also gave the purchaser right of access to a communal garden were not linked transactions, that the right of access was an exempt interest, and that the subject-matter of the freehold transaction was purely residential property.
The appellant purchased a freehold property in a London square, which also gave him the right to enter and use a communal garden in the middle of the square. Access to the garden was granted by an estate-management company. Within the permitted period, the appellant amended his original land-transaction return to claim the lower rates of SDLT in FA 2003, s. 55, Table B appropriate to non-residential and mixed-use property. HMRC rejected the claim.
On behalf of the appellant, it was argued that his right to use the garden was an equitable proprietary interest, which passed from owner to owner of the freehold property. As such, it was more than a mere exempt licence but a chargeable interest over non-residential property sold by the vendor of the freehold at the same time as the freehold transaction, thereby making the acquisition of the property a mixed-use and hence non-residential transaction.
The Tribunal had to decide:
- Was acquisition of the right of access to the garden (the garden transaction) a chargeable transaction in its own right?
- Was that acquisition a linked transaction with the acquisition of the residential property (the property transaction)?
- If so, was the main subject-matter of the garden transaction non-residential property?
- If not, did the main subject-matter of the property transaction include non-residential land?
On the first issue, the Tribunal found that the appellant had acquired the right, granted to all occupants of the purchased residential property, the right to enter and use the communal garden as a pleasure garden. It was granted to him in return for the payment of an annual fee by the estate-management company at the discretion of that company, and not a right transferred to him by the vendor. The right was newly granted and revocable at three months' notice. It was not an equitable interest but a licence to use land. A licence is an exempt interest; hence, the appellant had undertaken one chargeable transaction only – the purchase of the residential property.
On the second issue, as the vendor in the garden transaction was not the vendor in the property transaction, the two transactions were not linked within the meaning of FA 2003, s. 108.
On the third issue, which was relevant only if the Tribunal's finding on the second issue was wrong, the right to the garden, being a right that was granted to the purchaser only in his capacity as owner of a dwelling, was a right that subsisted for the benefit of a dwelling and hence constituted residential property, to which FA 2003, s. 55, Table A would apply.
On the fourth issue, the right to the garden was not an interest or right appurtenant or pertaining to the main subject-matter of the property transaction (per FA 2003, s. 46). It was acquired by means of a separate transaction with a different vendor and it did not in any case pertain to the property but to the garden. Even if that were not the case, given that the finding on the second issue was that the right was residential property, Table A would apply in either case.
In conclusion, the tax chargeable on the acquisition of the residential property was determined by FA 2003, s. 55, Table A and the appeal therefore fell to be dismissed.
Whoever or whatever persuaded the appellant to amend his return, given the large amount of tax at stake (the SDLT paid on the original return was £1.32m), he probably felt it was worth the gamble, but an independent observer would have concluded it was unlikely to succeed.
[1] This appeal was about whether the fact that, at the same time as buying a freehold property, Mr Khatoun also acquired rights to enter and use a nearby communal garden, meant that the applicable rates of stamp duty land tax (“SDLT”) on his purchase were those for “mixed” rather than purely “residential” properties.
[2] I gave my decision orally at the end of the hearing, finding that the “residential” rates applied and so dismissing the appeal. Mr Cannon asked that I provide a decision notice accompanied by full written findings of fact and reasons for the decision.
[3] On 15 August 2018 Mr Khatoun submitted an SDLT return self-assessing tax of £1,320,000 on the basis of the rates for “residential” properties.
[4] On 24 August 2018 Mr Khatoun submitted an amended SDLT return on the basis of the rates for “mixed-use” properties, as the property in question had the benefit of a right to use a communal garden; the self-assessment was reduced by £861,750.
[5] On 19 October 2018 HMRC notified Mr Khatoun of their intention to enquire into his SDLT return.
[6] On 20 December 2018 HMRC issued a closure notice stating SDLT was due at the residential rate. HMRC therefore rejected Mr Khatoun's claim for a refund.
[7] On 18 January 2019 Mr Khatoun appealed and requested a review.
[8] On 5 March 2019 a review conclusion letter upheld HMRC's original decision.
[9] On 30 April 2019 Mr Khatoun appealed to the Tribunal.
[10] The appeal to the Tribunal was made 25 days late due to some confusion over the deadline. HMRC did not object to the late appeal. In all the circumstances, I decided to permit the late appeal to the Tribunal.
[11] Mr Khatoun acquired the freehold interest in 25 Tedworth Square, London (title number BGL41559) (the “property”) on 15 August 2018 from a Mr Ipkendanz for a consideration of £9,375,000.
[12] On the same date Mr Khatoun signed a one-page “key fine form” issued by Cadogan Estates Limited and relating to Tedworth Square garden (the “communal garden”), a communal garden situated across the street from the property.
[13] Then or shortly afterwards, Mr Khatoun received a key to the...
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