Pony paddock not residential for SDLT

In Mr Taher Suterwalla and Mrs Zahra Suterwalla v HMRC [2023] TC8826, a paddock acquired on the purchase of a residential property was let out commercially on the same day as the purchase was completed, so for Stamp Duty Land Tax (SDLT), was the paddock required for the reasonable enjoyment of the dwelling having regard to its size and nature or not?

• The couple purchased, according to the estate agent,  an ‘Impressive seven bedroom family house with indoor swimming pool, tennis court, pavilion and paddock, in a sought after location with far-reaching views’.
• They let the paddock out immediately to a third party for use as horse grazing.
• They filed a Stamp Duty Land Tax (SDLT) return on the basis that the paddock was ‘non-residential property.
• HMRC challenged their return on the basis that the paddock was part of the grounds of the house and applied the Residential rate of SDLT applied to the whole purchase.

The couple appealed to the First Tier Tax Tribunal (FTT).

The FTT found that:

• The paddock is not visible from the house and access was via a small gate.
• HMRC had claimed that this was an ‘equestrian property’. It was not so, there were no stables and it was not described as such in the estate agent’s particulars.
• The paddock was not wanted by the couple, arguably it was not needed for their reasonable enjoyment of the dwelling having regard to its size and nature.
• The paddock was held under a separate legal title (folio) to the main property and its grounds.
• The new lease did affect the land use and it was a commercial lease. It was entered into on the day of completion: this granted access rights to the lessee over the other garden and grounds but actually, the useable access was via a bridle path off the paddock.

The FTT agreed with the taxpayers that the paddock was not part of the grounds of the residence and as such was non-residential for SDLT purposes.

Editorial Comment:

Although it's only a First Tier Tribunal decision, favourable judgments on this topic have been thin on the ground for buyers of 'landed' estates. The case, is interesting because we find that contrary to HMRC's evidence, the house was not marketed as an 'equine property' as it lacked stables. Additionally, the paddock was held under a separate title folio. The probable clincher (for us) was that the buyers had let their paddock commercially immediately on the day of completion. SDLT requires you to look at the use of the land on the day of the transaction, not at the time of the transaction. As they say, the devil is in the detail, we say, always double-check the exact wording of any legislation. The question is whether HMRC challenge this decision.

Useful guides on this topic

SDLT: Residential property & dwellings
What is residential property for Stamp Duty Land Tax (SDLT)? What tax rate applies? What garden and grounds are subject to higher rates of SDLT?

SDLT: At a glance, Stamp Duty Land Tax, rates & allowances
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?

SDLT: Residential Property Higher Rates
What Stamp Duty Land Tax (SDLT) rate applies for the purchase of a second home? What is the SDLT higher rate? Are there any reliefs from the SDLT higher rate?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Mr Taher Suterwalla and Mrs Zahra Suterwalla v HMRC [2023] TC8826