Doe v Revenue and Customs (STAMP DUTY LAND TAX - transaction involving multiple dwellings) [2021] UKFTT 17 (TC) (25 January 2021)

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Doe v Revenue and Customs (STAMP DUTY LAND TAX - transaction involving multiple dwellings) [2021] UKFTT 17 (TC) (25 January 2021) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08003.html Cite as: [2021] UKFTT 17 (TC)

DECISION

Introduction

1. There are two issues in this appeal. The first issue relates to whether or not HMRC opened an enquiry within the required time period in relation to the amended stamp duty land tax return of the Appellants. The second (or substantive) issue relates to whether a main house and an annexe acquired as parts of a residential property were both suitable for use as a single dwelling such that the acquisition qualified for multiple dwellings relief (“MDR”) from stamp duty land tax (“SDLT”).

THE APPEAL

2. HMRC issued closure notices on 7 June 2019 amending the SDLT return of the Appellants to show that the acquisition by the Appellants of 18 Ripplevale Grove, London N1 1HU (“the Property”) did not qualify for MDR. That resulted in an additional liability to SDLT of £80,250.

3. The Appellants notified their appeal to the tribunal on 15 October 2019.

FINDINGS OF FACT

4. The Appellants purchased the Property on 18 August 2017 for the sum of £2,700,000 and sent an SDLT return at that time.

5. Different rates of SDLT applied to different parts of the consideration. Applying those rates resulted in a liability to SDLT in the sum of £237,750 which was paid by the Appellants.

6. Subsequently, the Appellants amended their SDLT return and requested a refund of £80,250 which was paid to the Appellants. That amount constituted the difference between the SDLT paid originally (237,750) and the amount payable on the amended basis that the Property qualified for MDR (£157,500).

7. On 28 March 2019, HMRC sent an initial enquiry letter to the Appellants opening an enquiry into their SDLT return.

8. On 8 July 2019, HMRC wrote to the Appellants and their agent advising the Appellants that the Property did not qualify for MDR.

9. After receipt of the closure notices, the Appellants requested a statutory review. The review conclusion letter dated 18 September 2019 of HMRC upheld the closure notices.

10. The sale particulars of Chestertons, Islington describe the Property as a freehold detached, double fronted Grade II listed house set within the Barnbury conservation area on one of Islington’s most desirable roads.

11. Changes were made to the Property in 1969 including changes to the first floor to facilitate what is known as the grace and favour flat (or annexe).

12. The approximate gross internal area of the Property (excluding the cellar) is 1638 square feet (152.17 square metres). The cellar area is 267 square feet (or 24.8 square metres).

13. The sale particulars state also that, on the ground floor, there are two reception rooms with the entrance hall leading through to a dining room which in turn leads to the kitchen from which the ground floor bathroom can be accessed.

14. In respect of the first floor, the sale particulars state that there are two bedrooms with a separate annexe on the half landing housing another bedroom, bathroom and kitchen.

15. The Property has two doorbells.

16. The Property was purchased by the Appellants from Mr C Anson.

17. At the time of sale of the Property to the Appellants, the annexe was occupied by the ex-wife and child of the civil partner (named Ahmed) of Mr Anson.

LAW RELATING TO THE FIRST ISSUE

18. Schedule 10 of the Finance Act 2003 (“FA 2003”) states:

6 Amendment of return by purchaser

(1) The purchaser may amend a land transaction return given by him by notice to the Inland Revenue.

(2) The notice must be in such form, and contain such information, as the Inland Revenue may require.

(2A) If the effect of the amendment would be to entitle the purchaser to a repayment of tax, the notice must be accompanied

by -

(a) the contract for the land transaction; and

(b) the instrument (if any) by which that transaction was effected.

(3) Except as otherwise provided, an amendment may not be made more than twelve months after the filing date.

12 Notice of Enquiry

(1) The Inland Revenue may enquire into a land transaction return if they give notice of their intention to do so (“notice of enquiry”)-

(a) to the purchaser,

(b) before the end of the enquiry period.

(2) The enquiry period is the period of nine months-

(a) after the filing date, if the return was delivered on or before that date;

(b) after the date on which the return was delivered, if the return was delivered after the filing date;

(c) after the date on which the amendment was made, if the return is amended under paragraph 6 (amendment by purchaser).

This is subject to the following qualification.

(2A) If-

(a) the Inland Revenue give notice, within the period specified in subparagraph (2), of their intention to enquire into a land transaction return delivered under section 80 (adjustment where contingency ceases or consideration is ascertained), 81A (return or further return in consequence of later linked transaction) or paragraph 6 of Schedule 6B (adjustment for change of circumstances), and

(b) it appears to the Inland Revenue to be necessary to give a notice under this paragraph in respect of an earlier land transaction in respect of the same land transaction,

a notice may be given notwithstanding that the period referred to in subparagraph (2) has elapsed in relation to that earlier land transaction.

(3) A return that has been the subject of one notice of enquiry may not be the subject of another, except one given in consequence of an amendment (or another amendment) of the return under paragraph 6.

DISCUSSION RELATING TO THE FIRST ISSUE

19. The burden of proof lies with HMRC to show that an enquiry has been validly opened.

20. In short, HMRC contend that the date of amendment of the SDLT return of the Appellants was on or about 9 July 2018. That was the point in time when HMRC received the necessary information. The enquiry window was, HMRC contend, therefore open for 9 months from then until 9 April 2019. By opening an enquiry on 28 March 2019, the enquiry of HMRC was validly opened.

21. The Appellants, in summary, maintain HMRC had all the necessary information by 12 June 2018 in order to open an enquiry and that the window of enquiry closed 9 months later on 12 March 2019 such that the enquiry of HMRC, commenced about two weeks later, was out of time.

22. In respect of communications between the parties relating to the amendment of the SDLT return, the Appellants wrote to HMRC on 9 March 2018 seeking to make a claim for a refund of an overpayment of SDLT based on the fact that “the transaction may have qualified for multiple dwellings relief”. Official copies for title number LN186151 and a copy of the estate agent’s particulars were enclosed with the letter.

23. Prior to any response from HMRC to the letter of the Appellants dated 9 March 2018, Colman Coyle (a firm of solicitors) wrote to HMRC on 22 May 2018 explaining that they had acted on behalf of the Appellants in respect of the purchase of the property. Colman Coyle stated that the Appellants “would like to make a claim for multiple dwellings relief and therefore amend the return submitted on 18^th August 2017”. Enclosed with the communication from Colman Coyle were: a copy of the title to the Property; a copy of the estate agent’s particulars; a copy of the draft contract; a copy of the TR1 (this form relates to the transfer of the whole of the property in one or more registered titles); and a copy of a photograph taken by the Appellants showing the two doorbells positioned next to the front door.

24. HMRC did receive that letter of 22 May 2018 from Colman Coyle. HMRC, on 8 June 2018, wrote to the Appellants in response to their letter of 9 March 2018. HMRC requested copies of the “contract for the land transaction and the instrument, if any, by which the transaction was effected, for example the TR1, lease, assignment or similar document”. Those documents were to be provided by 8 July 2018.

25. On 12 June 2018, Colman Coyle responded to the letter of HMRC dated 8 June 2018 which had been forwarded on to them by the Appellants. In their letter of 12 June 2018, Colman Coyle stated: “We did not realise our clients had actually written to you independently because we were instructed by them to submit an application for a refund of SDLT and we enclose a copy of our letter to you of 22^nd May”. Colman Coyle enclosed the same documents with their letter of 12 June 2018 as detailed in their letter of 22 May 2018.

26. On 28 June 2018, HMRC replied to Colman Coyle’s letter of 12 June 2018 stating that the contract and TR1 provided were draft copies, that they did not have the completion date and were unsigned. HMRC asked that completed and signed copies of the contract and TR1 were sent.

27. On 3 July 2018, Colman Coyle responded to HMRC and provided executed copies of the contract and the TR1 in accordance with the request of HMRC.

28. At the hearing, and with reference to his skeleton argument, Mr Cannon stated that HMRC had not published any regulations specifying what information was required to be provided with respect to amendment of an SDLT return.

29. Mr Cannon referred to the case of Merchant and Gater v HMRC [2020] UKFTT 299 (TC). In that case, a letter dated 20 April 2017 claiming a refund of SDLT did not attach a copy of the contract of sale or a copy of the TR1 but it was explained that these documents would be provided “as soon as we have them”. The documents were subsequently sent to HMRC on 4 May 2017 and Judge Brooks stated that 4 May 2017 was “the earliest date on which the Return could have been amended” (paragraph 25 of the decision).

30. Mr Cannon submitted that a key difference between the current appeal and the Merchant case is that, in the current appeal, the required documents were submitted with the amendment letter dated 22 May 2018 albeit they were not copies of the signed versions “although they were accurate facsimiles in every other way” (skeleton argument, paragraph 9). It was also submitted that the Merchant case was incorrectly decided and that, on a purposive approach, paragraph 6 of Schedule 10 by referring to the notice being “accompanied” by the contract and transfer simply requires that the notice be supplemented in due course by these documents which can be supplied within a reasonable time of notifying HMRC of the amendment and that the notice takes effect when originally given.

31. Mr Marks, on behalf of HMRC, submitted that paragraph 6 of Schedule 10 states that the contract for sale for the land transaction and the TR1 must accompany the notice of amendment of return and that what was submitted on behalf of the Appellants was far short of a copy contract for sale and a copy TR1. Specifically, the copy TR1 rejected by HMRC was not dated, did not bear any signatures for the parties nor did it bear a witness signature. In respect of the copy contract for sale rejected by HMRC, that did not contain a date nor a signature of either party.

32. In respect of the argument of Mr Cannon that the required documents can be provided within a reasonable time of notifying HMRC of the notice of amendment of the SDLT return, I do not accept this. I agree with the approach taken in the Merchant case in this respect. Paragraph 6(2A) of Schedule 10 clearly includes the word ‘must’ when stating what documents are to accompany the notice of amendment of the SDLT. It does not make any reference to those documents being provided at a later point in time or within a reasonable time after having notified HMRC of the amendment.

33. In respect of the copy contract for sale provided with the letter of Colman Coyle dated 12 June 2018, it did not contain an agreement date or a completion date or a signature of the buyer or seller.

34. In respect of the copy TR1 provided with the letter of Colman Coyle dated 12 June 2018, it did not contain a completion date nor were any of the signature boxes in the execution part of the document (part 12) completed.

35. On receipt of the letter of HMRC dated 28 June 2018 seeking copies of the executed contract for sale and TR1, these were provided by Colman Coyle a matter of days later on 3 July 2018. No reason has been provided as to why executed copies of the contract for sale and the TR1 were not provided on 12 June 2018 instead of the draft, unexecuted versions of the documents. I see no reason why such executed versions of the contract for sale and TR1 could not have been sent with the letter of 12 June 2018.

36. I conclude that HMRC was correct to require the executed versions of the contract for sale and the TR1 to be provided and that the starting point in time for the period of 9 months in which to commence an enquiry began on or about 4 July 2018 such that the enquiry opened by HMRC on 28 March 2019 was within the period of 9 months allowed.

37. I dismiss the appeal of the Appellants in respect of whether the enquiry of HMRC was commenced within the required time period and will, therefore, now proceed to consider the substantive issue as to whether the acquisition of the Property qualified for MDR.

LAW RELATING TO THE SUBSTANTIVE ISSUE

38. The law relating to SDLT is contained largely in FA 2003.

39. SDLT is a tax on chargeable transactions.

40. Under section 49 of FA 2003, these chargeable transactions are ‘land transactions’ which are not exempt.

41. Section 43 of FA 2003 states that ‘land transaction’ means the acquisition of a ‘chargeable interest’.

42. Section 48 of FA 2003 states that a chargeable interest in this respect is an estate or interest in or over land.

43. The effective date for a land transaction for the purposes of SDLT is the date of completion.

44. Section 55 details the amount of SDLT chargeable in relation to chargeable transactions. Different rates of SDLT are applied to different parts of the consideration. The relevant rates in respect of this appeal are: 0% for so much of the consideration that does not exceed £125,000; 2% for so much of the consideration that exceeds £125,000 but does not exceed £250,000; 5% for so much of the consideration as exceeds £250,000 but does not exceed £925,000; 10% for so much of the consideration that exceeds £925,000 but does not exceed £1,500,000; and 12% for so much of the consideration that exceeds £1,500,000.

45. Schedule 6B details relief for transfers involving multiple dwellings. It applies, amongst other things, to a chargeable transaction if the subject matter consists of an interest in at least two dwellings.

46. Paragraph 7 of Schedule 6B contains the provisions for determining what counts as a dwelling.

47. Paragraph 7(2) states: “A building or part of a building counts as a dwelling if - (a) it is used or suitable for use as a single dwelling, or (b) it is in the process of being constructed or adapted for such use …”.

48. If it is determined that there is an acquisition of two dwellings, paragraphs 4 and 5 of Schedule 6B detail how SDLT is charged.

49. That involves determining the amount of SDLT that would be chargeable if the total consideration (£2,700,000 in this case) was divided by the number of dwellings (two in this case - the main house and the annexe). The amount of SDLT is then multiplied by the number of dwellings. If the amount of SDLT so calculated is less than 1% of the total consideration, then the SDLT is that 1% amount.

DISCUSSION RELATING TO THE SUBSTANTIVE ISSUE

50. This aspect of the appeal relates to whether or not the main house and the annexe each count as a dwelling for the purposes of MDR. The position of the Appellants is that there are two dwellings and that MDR applies. The position of HMRC is that there is a single dwelling and that MDR does not apply.

51. The burden of proof is on the Appellants to demonstrate that the annexe was used or was suitable for use as a single dwelling for the purposes of SDLT.

52. Mr Cannon, in his skeleton argument, stated that the term ‘single dwelling’ in paragraph 7 of Schedule 10 (What counts as a dwelling) is not further defined and so it is a matter of the ordinary and natural meaning of the phrase. Reference was made to HMRC’s published guidance, SDLTM00370, in respect of the meaning of ‘dwelling’. This guidance states:

53. “Meaning of ‘Single Dwelling’

54. Dwelling takes its everyday meaning (SDLTM00370). It must be sufficiently self-contained to be considered a ‘single dwelling’.”

55. Mr Cannon also referred to the case of Fiander and Brower v The Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 190 and submitted that the Fiander case is about the lack of an internal lockable door between the main dwelling and the annexe and so is not directly relevant to the current appeal. Reference was made to the witness statement of Mr Doe which describes that the Property has been used by different occupants as two separate dwellings for fifty years with two separate doorbells and a series of internal lockable doors to ensure that the occupant of either dwelling can enjoy a private domestic existence.

56. The skeleton argument of HMRC states that the unimpeded access between the purported annexe and the rest of the property, as in the Fiander case, prevented the requisite degree privacy and security for there to be two separate dwellings. At the hearing, Mr Marks for HMRC submitted that there would need to be a special relationship between the occupants of the main house and the annexe given the issue of privacy and security that derive from the layout of the Property such that the Property could not be generally so used in the absence of a special relationship between all of the occupants.

57. The approach adopted in the Fiander case with respect to “suitability for use” was an objective determination of the physical attributes of the property at the relevant time. It was stated that suitability for a given use is “to be adjudged from the perspective of a reasonable person observing the physical attributes of the property at the time of the transaction”. That is the approach that I have adopted with respect to this case and is the approach that I was encouraged to adopt by both parties in this appeal.

58. The time of the transaction is the date of completion which was 18 August 2017. It is at that point in time that the physical attributes of the property are to be adjudged and not at a later point in time based upon any potential or proposed changes that could be made to the physical attributes of the Property.

59. In the Fiander case, it was also stated that the suitability test cannot be performed on the assumption that new physical features will be introduced to enable a new and different kind of use and that this is the case even if the new physical features are relatively easy or quick to install. That is also the approach that I have adopted in this case.

60. A dwelling is a place where a person or a number of persons live. A building or a part of a building can be suitable for use as a dwelling only if a building or part of a building accommodates all of the basic domestic living needs of that person or persons.

61. Those basic domestic living needs are to sleep, to eat, and to attend to the personal and hygiene needs of the person or persons living in the dwelling.

62. Those basic domestic living needs also are to be accommodated with a reasonable degree of privacy and security.

63. HMRC make reference, in their Statement of Case, to their guidance SDLT00410-15 which seeks to provide assistance in determining what constitutes a single dwelling. That guidance, though, is not binding.

64. It is stated in that guidance that the test of whether a property is “suitable for use” as a single dwelling is a more stringent test than whether it forms a self-contained part of a larger dwelling. It is also stated that whether or not a property is suitable for use as a single dwelling requires consideration as to whether it is sufficiently independent to be considered a dwelling on its own.

65. In considering whether or not a property includes one or more dwellings, the guidance refers to a wide range of factors coming into consideration and it is stated that no single factor is likely to be determinative by itself.

66. With respect to the physical attributes of the Property, the Chestertons sales particulars for the Property contain a floorplan. With respect to the ground floor of the Property, the floorplan shows a reception room, a study, a dining room, and a kitchen/dining room (which leads to a bathroom although the word ‘bathroom’ is not detailed on the floorplan).

67. On the first floor of the Property, the floorplan shows two bedrooms, a master bedroom with a kitchen (leading to a bathroom although the word ‘bathroom’ is not used on the floorplan). This master bedroom with adjoining rooms is the annexe.

68. The floorplan does not use the word ‘annexe’ although the descriptive part of the sales particulars does, as stated previously, refer to “a separate annexe on the half landing housing another bedroom, bathroom and kitchen”.

69. The floorplan shows one door at the front of the house and, on gaining entry to the house through the front door, there is then a door to the reception room to the left, a door to the study to the right and, straight ahead, a door to the dining room (as well as a door to the rear garden).

70. The floorplan also shows that mounting the stairs from the ground floor leads to a door to the annexe and then there are some more steps up to the two bedrooms of the main house. Mr Doe gave evidence at the hearing that, from the annexe on the half landing to the two bedrooms on the first floor, there are about six steps.

71. In the Fiander case, it was decided that the short, open corridor connecting the main house and the annexe resulted in the main house and the annexe simply being too closely physically connected for either to be suitable for use as a “single” dwelling (see paragraph 62 of the decision).

72. In the present case, it is not in dispute between the parties that the annexe comprises self-contained accommodation. There is a bedroom, kitchen and bathroom within the annexe and the door into and out of the annexe can be locked. The annexe has its own boiler and electrical circuit. Neither is it in dispute between the parties that there is a separate doorbell at the front of the house for the annexe.

73. Mr Cannon in his skeleton argument states that the existence of a common front door, communal hallway and staircase is of no significance for MDR purposes given that any building in multiple occupation with separate self-contained dwellings such as flats in divided houses, mansion blocks or blocks of flats will have these features such that the Property is in principle no different from any other divided house in this respect. Mr Cannon also points to the presence of lockable internal doors to preserve the privacy and security of the respective parts of the building.

74. Mr Cannon also contended that even if the two bedrooms (on the first floor) and the reception room and study on the ground floor are discounted, there is still objectively a separate dwelling (on the ground floor) consisting of a single unit behind a lockable door comprising a living/sleeping area and a kitchen and bathroom much like a studio flat. That accommodation, it is submitted, is on its own suitable for use as a single dwelling without the “nice to have” other rooms elsewhere in the building (namely, the reception room, the study and the two bedrooms on the first floor).

75. Mr Marks, in his arguments, emphasised the insufficient privacy within the Property. He gave the example of an occupant of the main house, including a child, having to leave their bedroom on the first floor and go through the communal area of the Property to the toilet downstairs at night or to have a bath before going to bed in some state of undress. That could result in an occupant of the main house meeting an occupant of the annexe, a stranger, in the communal area of the Property when returning from having used the bathroom on the ground floor and returning to their bedroom on the first floor.

76. In the Fiander case, reference was made to imagining that the annexe was occupied by an older relative of the occupants of the main house or by one of their grown-up children.

77. It was stated that it could be imagined that such arrangements could provide adequate privacy and security to occupants of both the main house and the annexe given the family bonds of trust in existence between all occupants of both the main house and the annexe.

78. It was also stated in the Fiander case that a scenario could be imagined where a lodger could have sufficient ties of trust with the occupants of the main house such that the lodger could occupy the annexe and the need for privacy and security of all occupants of the main house and the annexe were satisfied.

79. In the present appeal, the ex-wife and child of the civil partner of the seller of the Property were living in the Property at the time of sale to the Appellants as was the civil partner (Ahmed) of Mr Anson (the seller). The Appellants have also provided a copy of the electoral register detailing that one Ms Agnes Groves was listed on the electoral register in 1960 (and afterwards) for 18 Ripplevale Grove, N.1 as was Mr Colin S Anson. Mr Doe gave evidence that Ms Groves was living at 18 Ripplevale Grove, N1 when Mr Anson bought the Property and that she continued to live there in a separate part from Mr Anson after his purchase of the Property.

80. Mr Doe also gave evidence at the hearing that, in the first month of their occupation of the Property, he and his wife had unannounced visits from former occupants of the annexe exclaiming what a wonderful home it had been for them.

81. With respect to whether or not a building or part of a building is suitable for a use, I agree with the approach taken in the Fiander case that it is if it can generally be so used. In other words, if a building (or part of a building) is suitable for use only in quite specific circumstances, then this points against the conclusion that the building (or part of a building) is suitable for that use.

82. In the present appeal, an occupant of the annexe on entering the Property through the front door would have access to each of the reception room, the study and the dining room (leading to the kitchen and bathroom on the ground floor) unless each of the doors to the reception room, the study and the dining room was locked. An occupant of the main house would have to lock each of those rooms on leaving each of those rooms on every occasion to ensure that access to each of those rooms was not available to the occupants of the annexe. Unless that was done, occupants of the annexe could freely gain access to the reception room, the study, the dining room and hence the kitchen and bathroom on the ground floor.

83. Additionally, the example given by Mr Marks of the occupants of the main house, on route to or from the bathroom at night and perhaps in some state of undress, potentially meeting occupants of the annexe in the communal areas of the Property is not a fanciful notion but a very real one given the layout of the Property.

84. Those circumstances are quite distinct to the situation described by Mr Cannon (such as in mansion blocks or blocks of flats) in which the existence of a common front door, communal hallway and staircase are of no significance for MDR purposes. That is not the position in the current appeal.

85. In the absence of any specific circumstances, the main house and the annexe in the current appeal would not be suitable for use as dwellings due to the insufficiency of privacy and security for the occupants of both the main house and the annexe.

86. In relation to the contention of the Appellants that, discounting the “nice to have” rooms on the ground floor would still result in two dwellings, the suitability test is an objective test based upon the physical features of the property at the time of the completion in the eyes of the objective observer. I do not accept that, in the eyes of an objective observer at the time of completion, an objective observer would have reasonably concluded that the Property was suitable for use as two dwellings on that basis, particularly as it would have resulted in a very significant part of the Property being rendered redundant.

87. In the eyes of an objective observer at completion, the main house and annexe would have been regarded as suitable for use as one single dwelling and not as two dwellings.

88. I conclude, therefore, that the main house and the annexe did not each count as a dwelling for MDR purposes but that they counted as a single dwelling.

89. The appeal is dismissed.

Super heading

Right to apply for permission to appeal

90. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

KELVAN SWINNERTON

TRIBUNAL JUDGE

RELEASE DATE: 25 JANUARY 2021

First-tier Tribunal (Tax)