Consideration of residential vs non-residential property for Stamp Duty Land Tax purposes
The First-tier Tribunal (FTT) upheld an appeal that a property was a mixture of residential and non-residential property for the purposes of Stamp Duty Land Tax (SDLT).
Background:
Mr. Brzezicki purchased a property in July 2020 which comprises a six-bedroom house, a large garden, and an island complete with a fisherman’s cabin, fishing rights and a carrier stream. The carrier stream serves as a spawning ground for brown trout fish. This then provides business to other families along the River Meon. The carrier stream is a manmade arrangement which was designed to facilitate the breeding of wild brown trout fish. There is no evidence that planning permission had been applied to create such a carrier stream.
Mr. Brzezicki intended to take advantage of the property by offering fly fishing to paying customers and running other commercial activities. Mr Brzezicki would not have bought this property if it had not been adjacent to the River Meon and had a carrier stream. He bought the property with a mortgage containing a clause that the property could not be used for commercial purposes. However, Mr. Brzezicki was unaware of it.
Immediately after completion of the purchase, Mr. Brzezicki removed some poisonous weeds from the area around the carrier stream, did some work on the bridges to the island to make them safe and promoted the fly fishing business by inviting people to fly-fish on the island without payment to generate goodwill. He set up his website promoting fly fishing and the adoption by feepaying fly fishing customers began in earnest in March of 2021.
Mr. Brzezicki’s solicitor filed the SDLT return on the 7th of July 2020 declaring that the property was purchased for £1,450,000 and was residential. Accordingly, an SDLT of £132,250 was paid. In October 2020, Mr. Brzezicki set up a company Meon Meadows Ltd and transferred to it the business and assets he had acquired. An amended SDLT return was filed in December 2020, stating that the land comprised residential and non-residential land, that the duty should be £62,000 and sought a reclaim of £70,250. HMRC assessed the property and refused the amended SDLT.
Decision:
The FTT allowed the appeal and decided in favour of the taxpayer that one-third of the land was not part of the garden and grounds of the residential property according to Section 116(1)(b) and Schedule 55 of the Finance Act 2003. This part of the land, therefore, attracted a reduced rate of SDLT. Indeed, that part of the land was not residential because it was an island separated from the garden and grounds by a carrier stream, in effect a factory intended to produce brown trout for fly-fishing.
Despite several potentially contrary factors, such as the fact that the land had been marketed by the estate agents as a garden and suitable play area for children, Judge Gething concluded: “The land to the west of the carrier stream, did not as a matter of fact form part of the garden and grounds of the property, and the carrier stream is a factory to produce brown trout to be fly-fished in the River Meon and, in consequence, the carrier stream and island bounded by the carrier stream and the River Meon, is non-residential land.” He concluded that, “the fishing rights did not, at completion, comprise a right in or over land that subsisted for the benefit of the six-bedroom dwelling house. The fishing rights attached to the land formed part of the island which was separated from the dwelling by the carrier stream. The fishing rights subsisted for the benefit of the land forming the island.”
Implications:
This decision demonstrates the importance of the classification of land for SDLT purposes. Despite the contrary factors, the Judge was of the view that, due to the nature of the carrier stream, it was non-residential.
Given that the Judges dissented on the findings of facts and the decision, it is likely that HMRC will appeal.
