R & C Commissioners v Ridgway
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 February 2024 |
| Neutral Citation | [2024] UKUT 36 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2024] UKUT 36 (TCC)
Judge Jonathan Cannan, Judge Vimal Tilakapala
Upper Tribunal (Tax and Chancery Chamber)
Stamp duty land tax (SDLT) – Claim that property mixed use – FA 2003, s. 116 – Relative weighting of covenant preventing residential use and planning-law restriction on commercial use – Was the anti-avoidance rule in FA 2003, s. 75A engaged? – No – Whether multiple-dwellings relief should have been given in absence of claim – No – Appeal allowed.
In R & C Commrs v Ridgway [2024] BTC 506, overturning the decision of the First-tier Tribunal (FTT) (), the Upper Tribunal (UT) held that a studio under a commercial lease acquired together with a residential property was nevertheless suitable for use as a dwelling and that multiple-dwellings relief was not available in the absence of a claim in the prescribed manner.
The respondent, Mr Ridgway, had purchased two properties in Oxford, a house on Crick Road and an adjoining building (The Old Summer House) that had been used as an artist’s studio, for a total consideration of £6.5m. In reliance on guidance (subsequently withdrawn) in HMRC’s Stamp Duty Land Tax Manual at para. SDLTM00365, he insisted that a commercial lease be granted in respect of The Old Summer House before completion, thereby hoping to benefit from the lower, non-residential rates of tax for the whole transaction on the grounds that The Old Summer House was neither in use nor suitable for use as a dwelling. The lease contained a covenant that The Old Summer House not be used for residential purposes.
It was on that basis that he filed the land-transaction return and paid tax. HMRC, however, opened an enquiry into the return and corrected it on the basis that both properties were dwellings so that the residential rates of tax applied. At that point, the time limit for claiming multiple-dwellings relief (MDR) had expired and so MDR was not available. Mr Ridgway nevertheless made a claim for MDR after receiving HMRC’s closure notice.
Mr Ridgway’s appeal to the FTT rested on three issues: (1) HMRC’s refusal to apply the non-residential rates of tax to the transaction; (2) if, notwithstanding, residential rates were applicable, that he should be allowed the MDR claim; and (3) against the charge to interest on overdue tax.
The FTT found that whereas it would not have been impossible to use The Old Summer House as a dwelling, it had also to consider the existence and terms of the commercial lease. At the effective date, had someone tried to occupy the building as residential property, the resulting breach of the terms would have led to forfeiture of the lease and possible liability to damages or injunctions. The Old Summer House was therefore not suitable for use as a dwelling and the non-residential rates of tax would have been applicable were it not for the operation of the anti-avoidance provisions of FA 2003, s. 75A–75C.
The Tribunal considered that the requirements for the application of s. 75A were satisfied. As a result of its application, since s. 75C(2) provided that the notional transaction would attract any relief that it would have attracted if it had been an actual transaction, MDR would be applied to the notional transaction since the existence of the lease was now disregarded (under s. 75A(4)(a)) even in the absence of a valid claim for MDR.
The effect of its decision was that Mr Ridgway’s appeal was allowed in part, with SDLT calculated at the residential rates but with the benefit of multiple-dwellings relief.
HMRC appealed on four grounds:
- The FTT had erred in law in concluding that a private-law obligation in a lease was capable of rendering an otherwise residential property non-residential within the meaning of s. 116.
- Alternatively, the FTT had erred in law in treating the restriction against residential use in the lease as determinative and failed to take into account the existence of planning obligations restricting the use of The Old Summer House.
- The FTT had erred in law in finding that FA 2003, s. 75A was engaged.
- In any event, the FTT had erred in law in finding that MDR was available in the absence of a claim for it in a return or amended return.
Mr Ridgway cross-appealed. He too maintained that s. 75A was not engaged, that the FTT should have found that the non-residential (mixed-use) rates applied to the transaction; alternatively, the FTT had been right in finding that MDR was available.
In the view of the UT, the existence of restrictions on use, whether by way of covenants, planning law or other legal restrictions, had to form part of the multifactorial analysis outlined in Fiander v R & C Commrs, as to whether a building was suitable for use as a dwelling. Ultimately, it was a matter for the FTT as the fact-finding tribunal, to decide what weight to place on the relevant factors in determining the issue. The FTT had therefore not erred in law in taking into account the existence of a covenant against residential use of The Old Summer House.
Both parties had addressed the planning position in their submissions to the FTT, yet the FTT had not made any findings of fact as to that position. The evidence before the FTT had clearly established that there was planning permission for use of The Old Summer House as a summerhouse, garden workshop and conservatory and there was a certificate that use as an independent residential unit was lawful. Use as a commercial studio was an unauthorised development for planning purposes.
The UT was satisfied that the FTT’s failure to take the planning position into account was a material error in law.
The overall position was that commercial use of The Old Summer House was restricted by planning law and residential use was restricted by the lease. This did not mean that The Old Summer House was not suitable for any use for the purpose of s. 116(1). On the facts of the case, the legal restrictions on use for residential purposes carried less weight in assessing suitability for use than the physical attributes of the building. Here, where the legal restrictions were effectively inconsistent, the physical attributes were dominant.
The UT was satisfied that The Old Summer House was suitable for use as a dwelling at the effective date of the transaction.
Both parties had agreed that s. 75A was not engaged. Contrary to the FTT’s decision, the UT agreed. The amount paid for the property by Mr Ridgway and the amount received by the vendor was the same. It followed that the consideration for the notional transaction posited by s. 75A was also the same amount and the SDLT payable on the notional transaction would be the same, whether the property was residential or non-residential. One of the necessary conditions for applying s. 75A (the tax difference under s. 75A(1)(c)) was therefore absent.
Where the FTT had erred was in disregarding the lease for the purposes of s. 75A so that tax under the notional transaction would have been calculated on the basis that the property was wholly residential whereas it had found that the actual transaction was one whose subject-matter was mixed-use, hence non-residential. However, the disregard it had applied under s. 75A(4)(a) was engaged. The nature of the property under the actual transactions and the notional transaction remained the same.
The law (FA 2003, s. 58D) was clear that MDR had to be claimed in a land-transaction return or in an amended return. Mr Ridgway’s argument was essentially that when HMRC closed an enquiry, it could give effect to a claim for MDR that the taxpayer wished to make even though the claim had not been made as required by s. 58D.
However, SDLT was a self-assessed tax that imposed hard-edged deadlines. Where a relief required a claim, and a claim was not made in accordance with any procedural requirements, the taxpayer was not entitled to relief. The relevant facts had been known to Mr Ridgway at the time he made his return. He had made an error in concluding that the property was non-residential property. The absence of any provision for him to make a claim out of time or during the course of an enquiry was consistent with the benefit of certainty and finality to which the Court of Appeal had referred in Candy v R & C Commrs. With reference to a claim under FA 2003, Sch. 10, para. 34 for repayment of tax that the taxpayer believed was not due, HMRC had the power to refuse that claim where a claim or election for relief that ought to have been made had not been made. In fact, Mr Ridgway had not been overcharged to tax by the amended self-assessment. Since there had been no valid claim for MDR and HMRC had no obligation to give effect to the relief in the absence of such a claim, the amended self-assessment had charged the correct amount of tax.
The FTT had therefore been wrong to allow the appeal in part and reduce the self-assessment by reference to MDR.
The FTT’s decision would be set aside, HMRC’s appeal allowed, and Mr Ridgway’s appeal dismissed.
More than a sharp rap on the knuckles for the FTT, which, in the view of the UT, made three crucial errors.
The UT’s decision essentially gives a seal of approval to HMRC’s guidance (revised in 2019) in ), which states: “The presence of physical attributes which indicate a dwelling is likely to indicate that the building is suitable for use as a dwelling regardless of its actual use. Private/public legal conditions (including planning permission) affecting use are a factor in assessing suitability for use but although these may dissuade an occupier from using a building as a dwelling, they are not necessarily determinative of whether that building is...
To continue reading
Request your trial