SDLT – When a home is not a residential property

The Case of Goodfellow v HMRC [2019]: A Landmark SDLT Refund Dispute

Introduction:

In a fascinating legal battle between Goodfellow and HMRC in 2019, a claim for a significant Stamp Duty Land Tax (SDLT) refund of £48,500 was at stake. The case revolved around the classification of a property and whether it should be considered residential or mixed-use. Let’s delve into the details of this intriguing case and its outcome.

Background:

Goodfellow, the appellant, had purchased a property that was marketed as a “fantastic family home set in about 4.5 acres within the sought-after New Forest National Park.” With six bedrooms, gardens, a swimming pool, garaging, stable yard, and paddocks, it was undoubtedly an appealing property. The purchase price amounted to £1,775,000, and Goodfellow paid an SDLT of £126,750, classifying the property as residential on their SDLT1 return.

Claim and Counterclaim:

Approximately one and a half years after the purchase, Goodfellow’s tax agents submitted a claim seeking an SDLT refund under para 34 of Schedule 10 of the Finance Act 2003. They argued that the property had been misclassified as residential and should have been categorized as mixed-use. HMRC, on the other hand, contended that the detached garage, stable yard, and paddocks were part of the residential property’s grounds and should be considered residential.

The Interpretation of the Law:

The crux of this appeal hinged on the correct interpretation of Section 116 of the Finance Act 2003, which defines “residential property” and “non-residential property.” According to the act, residential property includes buildings suitable for use as a dwelling, land forming part of the garden or grounds of such a building, and interests or rights over such land. Non-residential property refers to any property that does not fall under the definition of residential property.

Arguments and Analysis:

HMRC argued that the garage’s space above was suitable for use as a dwelling, as evidenced by its previous use as an office. The stable yard and paddocks, according to HMRC, were part of the property’s grounds and commensurate with the size of the dwelling house. Although a third party used the paddocks for grazing horses, HMRC contended that this did not change their character as part of the grounds. Additionally, the rental amount of £1 per month for the paddocks was deemed non-commercial. As the paddocks were sold along with the residential property and not separately, their undeveloped status was considered immaterial.

The First Tier Tribunal’s Findings:

The First Tier Tribunal assessed each aspect of the property in question. While the estate agent’s particulars were not the sole determining factor for SDLT classification, they played a significant role in shaping the appellants’ decision to purchase the property. The particulars described the property as an equestrian property, emphasizing its residential nature without any mention of current commercial activity or future development.

Examining the property as a whole, the Tribunal recognized the importance of the land surrounding the house, which contributed to its character, privacy, and the enjoyment of country pursuits. The large room above the detached garage, although used as an office, was deemed wholly residential in character. It was seen as an extension of the house and akin to a study, spare room, or even a dining room table used for work purposes.

Regarding the paddocks, they were considered integral to the property’s equestrian nature, necessary for keeping horses on the premises. The rental arrangement of £1 per month was regarded as a nominal fee rather than a commercial arrangement. The paddocks, along with the stable yard, were concluded to be part of the residential property’s grounds and thus classified as residential.

The Tribunal’s Ruling:

Ultimately, the First Tier Tribunal ruled in favor of HMRC, affirming that the property fell within the definition of “residential property” according to the Finance Act. Consequently, the SDLT refund claimed by Goodfellow was denied.

Conclusion:

The case of Goodfellow v HMRC [2019] presented a compelling legal dispute over the classification of a property for SDLT purposes. Although the estate agent’s particulars influenced the appellants’ decision to some extent, the First Tier Tribunal concluded that the property was indeed residential, taking into account factors such as the land surrounding the house, the room above the detached garage, the paddocks, and the stable yard. This case serves as a reminder of the complexities involved in determining SDLT classifications and the importance of accurate property descriptions in avoiding potential disputes with HMRC.