Brandbros Ltd v Revenue and Customs (SDLT)

Factual and Procedural Background

The Appellant, Company A, purchased a property known as 23 Devonshire Road, The City, on 27 July 2018 for £312,500. On 30 July 2018, Company A filed a Stamp Duty Land Tax (SDLT) return self-assessing the tax due at the residential rate. Subsequently, Company A sought to amend the return on the basis that part of the property, specifically a garage, was non-residential due to a commercial lease granted on the date of completion to a third party for use as storage. The Respondents, The Commissioners for Her Majesty's Revenue and Customs (HMRC), issued a closure notice refusing the repayment claim. Company A appealed the closure notice to the First-tier Tribunal under paragraph 35 of Schedule 10 Finance Act 2003. The hearing was conducted via video on 29 April 2021 due to Covid-19 restrictions.

Legal Issues Presented

1. Whether the property purchased by Company A should be classified as mixed-use (residential and non-residential) due to the grant of a commercial lease on the effective date of completion.
2. Whether the grant of a lease over the garage on the date of completion alters the SDLT classification of the property from residential to mixed-use.
3. The proper interpretation and application of section 116(1)(b) Finance Act 2003 regarding the definition of residential property and its grounds or garden including buildings or structures thereon.
4. The relevance and application of the transactional nature of SDLT in determining the classification of the property at the effective date of the transaction.

Arguments of the Parties

Appellant's Arguments

• The effective date of the land transaction is the date of completion, and if the property became mixed-use during that date, it should be treated as such for SDLT purposes.
• HMRC's guidance states that the use at the effective date overrides any past or intended future uses.
• Reliance on the case Abbey National v Cann to reject the notion of a brief time gap ('scintilla temporis') between completion and lease grant.
• The garage ceased to be part of the garden or grounds by virtue of its commercial use starting on the date of completion through the grant of the lease.
• No evidence was presented that planning permission was required for the garage's commercial use, and HMRC did not contest this point.
• A property adapted for non-residential use should not be classified as residential under the statute.

Respondents' Arguments

• There is no dispute that the garage forms part of the garden or grounds of the property.
• At the time of purchase, the property was residential with vacant possession and no lease in place.
• The grant of the lease does not change the property's character under section 116(1)(b) FA 2003; the use of the garage is irrelevant to its classification as residential property.
• Legislation takes precedence over HMRC guidance, which has been updated since the Appellant's cited version.
• The garage continued to be used for storage, a normal garage function, and the lease grant alone does not alter the property's classification.
• SDLT is a transactional tax distinct from stamp duty, focusing on the transaction as completed, not subsequent events.
• Previous tribunal decisions confirm the wide definition of residential property and that the garage remains part of the residential grounds.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hyman, Pensfold, Goodfellow v Revenue and Customs [2021] UKUT 68 (TC)	Interpretation of section 116(1)(b) FA 2003 regarding the garden or grounds of a dwelling and whether use limits classification.	The court relied on this decision to conclude that the statutory definition does not limit the garden or grounds to areas used for residential purposes, supporting the classification of the garage as residential property.
Abbey National v Cann [1990] 1 All ER 1085	Rejection of the 'scintilla temporis' concept in conveyancing transactions.	The Appellant cited this case to argue that the lease grant on the date of completion should be considered as part of the property use at that time; the court noted the distinction between conveyancing and SDLT transactional contexts.
Hyman v Revenue and Customs [2019] UKFTT 469 (TC)	Broad definition of residential property under section 116 FA 2003.	The court referenced this decision to support the wide scope of the residential property definition, affirming that the garage remains part of the residential grounds.

Court's Reasoning and Analysis

The Tribunal found that the garage is a building or structure forming part of the garden or grounds of the residential property and is thus classified as residential property under section 116(1)(b) Finance Act 2003, regardless of its use. The statutory language does not restrict the garden or grounds to areas used solely for residential purposes. Although previous decisions suggested that land used for separate commercial purposes might not qualify as grounds, the Tribunal noted those decisions lack binding precedential value for this case.

Regarding the transactional nature of SDLT, the Tribunal emphasized that SDLT is charged on the transaction as completed, not on subsequent or simultaneous transactions occurring after completion. The purchase transaction was completed on 27 July 2018 and involved the acquisition of residential property with no lease in place. The lease over the garage, although granted later the same day, constitutes a separate transaction and does not affect the SDLT classification of the purchase.

The Tribunal rejected the Appellant's argument that the property should be classified as mixed-use based on the grant of the lease on the effective date. It clarified that the grant of the lease does not alter the character or use of the property for SDLT purposes, particularly as the garage continued to be used for storage, a typical residential ancillary use. The Tribunal also noted that no evidence was presented showing that planning permission was required or obtained, nor that the garage was separately registered for business rates, further supporting the residential classification.

Holding and Implications

The appeal is DISMISSED. The Tribunal held that the property purchased by Company A was correctly classified as residential for SDLT purposes. Consequently, no refund of SDLT is due. The decision confirms that for SDLT, the classification of a property is determined by the nature of the transaction as completed, and subsequent transactions on the same date do not alter that classification. No new precedent was established beyond the application of existing statutory interpretation and case law principles. The direct effect is that the Respondents' closure notice refusing the repayment stands, and the Appellant must bear the SDLT charge at the residential rate.