Pensfold
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 November 2019 |
| Neutral Citation | [2020] UKFTT 116 (TC) |
| Date | 14 November 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 116 (TC)
Judge Philip Gillett, Michael Bell
Graham Callard, counsel, instructed by Cornerstone Tax, appeared for the appellant
Philip Oborne, officer of HMRC, appeared for the respondents
Stamp duty land tax (SDLT) – Higher-threshold interest in single dwelling – FA 2003, Sch. 4A – Whether relief available for intention to carry on qualifying trade – FA 2003, Sch. 4A, para. 5B – Yes – Whether property residential or mixed use – Residential – Penalty for deliberate or careless error – FA 2007, Sch. 24, para. 3 – Whether appellant took reasonable care to avoid inaccuracy – FA 2007, Sch. 24, para. 18 – Yes – Appeal partially allowed.
The First-Tier Tribunal (“FTT”) held: (a) that the intention to carry on a qualifying trade was sufficient to qualify for relief against the SDLT higher-rate charge under FA 2003, Sch. 4A; (b) that the acquisition of a farming property was a residential transaction as no grazing was carried on at the time; and (c) that the purchaser had taken reasonable care to avoid inaccuracy so as to avoid a penalty for deliberate or careless error under FA 2007, Sch. 24.
The appellant, a Cayman Islands company, acquired a farm with 10.93 ha of land with the intention of developing the property as an eco/agritourism venture. The appellant's agents filed the land-transaction return and paid SDLT on the basis that the property was mixed-use and claimed relief under FA 2003, Sch. 4A, para. 5B from the 15% higher-rate charge to SDLT on the entire purchase price on the grounds that the appellant intended to use the farmhouse for short-term letting to members of the public.
When HMRC opened an enquiry into the return, the project was put on hold, but the farmhouse was prepared for letting and was let on a number of occasions in the following months. At the completion of the enquiry, HMRC assessed the appellant to additional tax on the basis that the transaction was a residential-property transaction and that no relief was due under FA 2003, Sch. 4A, para. 5B. HMRC also issued a penalty notice charging a 38.5% deliberate-inaccuracy penalty under FA 2007, Sch. 24.
The issues before the Tribunal were:
- whether relief was due under FA 2003, Sch. 4A, para. 5B
- whether the transaction was residential or mixed-use (some of the land had been used for many years for grazing) and
- whether the appellant had taken reasonable care so as to avoid the inaccuracy penalty
Relief from the 15% higher-rate charge to SDLT on the acquisition of a higher-threshold interest in a single dwelling is available, inter alia, if the purchaser makes the acquisition with the intention to exploit it as a source of income in the course of a qualifying trade involving offering the public the opportunity to “make use of, stay in or otherwise enjoy the dwelling as customers of the trade on at least 28 days in any calendar year”. It is also a requirement for reasonable commercial plans to have been formulated to carry out that intention without unavoidable delay or delay that may be justified by commercial considerations.
HMRC accepted that the property had been acquired with the intention of setting up a qualifying trade but contended that relief was not due because (a) the letting that did take place did not form part of the appellant's original intentions; (b) the plans were not available on the day on which the property was acquired; and (c) the delay to the start of the required works was not acceptable.
The FTT held that there was nothing in the legislation requiring the intended trade to be carried on at the time of the claim for relief or indeed at any time. The intention was enough and the plans for the envisaged trade clearly showed that the property would be available to the public for at least the minimum 28 days required. Nor was it necessary to have detailed plans in place at the time of the acquisition. The legislation required only that reasonable commercial plans be in place and HMRC accepted that the appellant had always had the intention to develop an eco/agritourism business. This was sufficient, in the FTT's view, to meet the criterion.
As to the delay point, the legislation did not require the actual project to be carried out without delay nor for it actually to be implemented in order to qualify for relief. It was enough for there to be reasonable plans for the project to be implemented without delay. Furthermore, the delay that had actually occurred was entirely reasonable given the possible additional costs of additional tax of nearly £300,000 (the purchase price was £2.825 million). The FTT therefore found that the delay was justified by commercial considerations.
The appellant contended that the property was subject to mixed use (and therefore the non-residential rates of SDLT applied) on the grounds that it was subject to a long-term grazing agreement under which the land had been grazed every year for a number of years. However, at the time of purchase, the land was not being grazed and neither the sale advertising nor the sale and purchase contract made any mention of the property's being subject to grazing rights. The FTT therefore concluded that the use of the property at the time of purchase was wholly residential.
HMRC had assessed the appellant to a penalty under FA 2007, Sch. 24 on the basis that the error (in claiming the property was mixed-use) was deliberate. It was a defence against the penalty that the taxpayer had taken “reasonable care” to avoid the inaccuracy. Counsel for the appellant contended that the error had been a simple clerical error and that, in any case, it had taken reasonable care to avoid the inaccuracy.
The FTT did not accept on the facts that there had been a clerical error, but it did accept that reasonable care had been taken. The appellant was a Cayman Islands company and had appointed a reputable firm of UK solicitors to act on its behalf. It should not have been expected to have known the full implications of the statement that the SDLT had been calculated on the basis that the property was a farm (and therefore non-residential use was appropriate). As a non-resident company, it was not reasonable to expect it to have done more. The penalty would therefore be discharged.
In conclusion, the appeal was partially allowed, on the basis that whereas the appellant was not entitled to the rates for non-residential property, it was entitled to relief from the 15% higher-rate charge and it should not be charged a penalty.
In this writer's opinion, the FTT was on firm ground on the relief question. There is, indeed, no requirement in FA 2003, Sch. 4A that the qualifying trade must be carried on at the time of purchase or, indeed, as the FTT pointed out, at all. It is sufficient for there to be the intention to carry on the trade without unreasonable delay, backed up by reasonable commercial plans. There is sufficient safeguard in FA 2003, Sch. 4A, para. 5H, which provides for relief to be withdrawn where, inter alia, the property is not at any time in the three years following the effective date of the transaction being used for the purposes of the qualifying trade.
Where its finding may more reasonably be subject to challenge is on the penalty. The FTT seems to have accepted rather easily that it was sufficient for a non-resident company to appoint reputable agents for it to have taken reasonable care to avoid the inaccuracy, especially as here the appellant had a UK representative acting on its behalf. Although, in Merrie [2017] TC 06103, the taxpayer was found not to have taken reasonable care simply because he had failed to take professional advice, is taking such advice sufficient in itself for reasonable care? On the analogy of reasonable-excuse cases, it is at least arguable that it is not enough merely to appoint an agent, even a competent professional adviser, without some sort of follow-up where problems arise. In Ayers [2016] TC 04975, the FTT found that the taxpayer would also have to show that he checked the advice, complications and suggestions which were presented to him [by a competent professional adviser].
[1] This was an appeal against HMRC's decision, contained in...
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