An individual has won a First Tier Tribunal (FTT) appeal against a demand from HMRC over disputed stamp duty land tax (SDLT) payments

The appellant, Gary Withers, appealed against a closure noticed issued by HMRC, which increased the SDLT due from £114,500 to £212,500.

The notice was issued to Withers over an enquiry into his SDLT return for the acquisition on 31 July 2019 of a house and land located at the property known as Lake Farm, in Kent.

The case concerned whether a home with adjoining grazing and woodland could attract commercial rates of SDLT tax instead of residential rates.

HMRC allowed the appellant’s claim for multiple dwellings relief (MDR) but concluded that the acquisition was of ‘wholly residential property’ and calculated the increased amount of SDLT under s55 of the Finance Act 2003 (FA 2003).

FA 2003 establishes that SDLT tax is chargeable when the relevant land ‘consists entirely’ of residential property.

In respect of the land, HMRC contended that it was entirely appropriate for such a large rural property to include ‘extensive gardens or grounds’ and was eligible as residential property for SDLT purposes.

The appellant argued that the property included non-residential property and, therefore, should have been classed as mixed-use.

Lake Farm was a barn conversion and was advertised as sitting in landscaped gardens. The fields and woodlands were mentioned separately.

Two months before completion, the appellant had signed an agreement with a farmer which gave him permission to graze sheep on 20 acres and to cut hay on a further five acres. This agreement lasted for one year, in return for £800.

The same farmer had grazed sheep at the property on an informal basis continuously for many years. In addition, another part of the property was used as part of a Woodland Trust scheme, a conservation charity.

On 31 July 2019, Withers completed the transaction purchasing the property for £2.5m. On the same date, HMRC received an SDLT return from the appellant.

The property was classified as ‘mixed-use’ on the basis that its land was used for agricultural purposes and the amount of tax self-assessed was £114,500.

On 20 January 2021, HMRC wrote to the appellant citing that the acquisition of the property should have been classed as residential due to the fact that the appellant owned additional properties at the time of its purchase.

In response, the appellant’s agent stated that he owned their previous main residence upon purchasing the property but had sold this in October 2020. They argued that it was pointless for him to pay higher rates on additional dwellings (HRAD).

On 14 April 2021, HMRC issued the closure notice under s10 FA 2003 increasing the SDLT due to £212,500, a difference of £98,000 to the amount self-assessed.

The tax authority stated that as the appellant owned multiple dwellings at the date of the purchase, HRAD was applicable.

Withers argued that the land surrounding Lake Farm had been used for a separate purpose and in a commercial sense, as it had been grazed by a farmer continuously for 20 years.

He also stated that many in the farming community struggled to make a living and that it would be ‘irresponsible’ to charge high rent to a farmer for revenue which would be immaterial to his own income.

Judge Ruhven Gemmell WS said: ‘In respect of HMRC’s submission relating to the ‘use of land’ the tribunal does not accept their submission that it is sufficient that the adjacent land is available to Withers to use as he wishes. The grazing agreement does contain restrictions on his use of the land as set out in his submissions.

‘The tribunal, following a balanced assessment of all the facts, considers that the land surrounding Lake Farm to the extent that it is occupied for grazing and by the Woodland Trust does not constitute gardens or grounds, and therefore, should not be treated as residential property for the purposes of SDLT.’

Accordingly, the appeal was allowed.

Sean Randall, partner at Blick Rothenberg, said: ‘For years taxpayers have argued that where they have a property in the country that has grazing and woodland that any SDLT should be levied on a commercial basis instead of a residential basis.

‘This has led to litigation and HMRC had, until this case, an unblemished record in challenging ‘mixed-use’ appeals. This is the first case where the evidence of separate non-residential use has been sufficient.

‘It is also a good example of the need to consider all the circumstance and to be careful of relying on HMRC’s guidance.’