Ridgway v Revenue And Customs (SDLT return, acquisition of two distinct properties from single vendor, claim for mixed use relief)

Factual and Procedural Background

This case concerns an appeal by the Appellant against a decision of the Respondents denying Mixed Use Relief from Stamp Duty Land Tax (SDLT) in relation to the acquisition of two adjoining properties from a single vendor. The properties, a semi-detached house and another property known as The Old Summer House, had separate titles and registrations. The Appellant claimed Mixed Use Relief relying on HMRC guidance SDLTM00365, having entered into a commercial lease over The Old Summer House at completion. The Respondents denied the relief on the basis that both properties were residential within the meaning of section 116 Finance Act 2003 (FA 2003). The Appellant also sought Multiple Dwellings Relief as an alternative, but no timely claim was made for that relief. The Appellant further appealed the statutory interest charged on unpaid SDLT.

The Appellant's solicitor advised that Mixed Use Relief was available if The Old Summer House was under a commercial lease at completion, whereas Multiple Dwellings Relief could be claimed if no such lease existed. The commercial lease to a photographic studio business was granted prior to completion and restricted residential use. The Appellant filed the SDLT return claiming Mixed Use Relief within the statutory 30-day period. The Respondents opened an enquiry within the statutory period and issued a closure notice over three years later denying Mixed Use Relief and disallowing a late claim for Multiple Dwellings Relief.

The Tribunal held a remote video hearing with both parties attending, considering extensive documentary bundles and skeleton arguments. The Tribunal judge made findings of fact regarding the physical characteristics and use of The Old Summer House, the nature and effect of the commercial lease, and the statutory provisions governing SDLT.

Legal Issues Presented

1. Whether The Old Summer House constituted residential property within the meaning of section 116(1)(a) FA 2003 at the effective date of the transaction.
2. If Mixed Use Relief was not available, whether Multiple Dwellings Relief could be claimed despite the absence of a timely claim.
3. Whether the statutory interest charged on unpaid SDLT was correctly imposed.
4. The application of the anti-avoidance provisions in section 75A and related sections of FA 2003 to the scheme of transactions.

Arguments of the Parties

Appellant's Arguments

• The Old Summer House was not residential property at the effective date because it was not in use as a dwelling and was not suitable for use as a dwelling due to the existence of a commercial lease prohibiting residential use and sub-letting.
• The test of suitability must be assessed based on the circumstances at the effective date, including actual use and legal restrictions, not just physical features.
• The Appellant and his solicitor reasonably relied on HMRC guidance SDLTM00365, which supported the availability of Mixed Use Relief when a commercial lease was in place.
• The property’s unusual physical layout made it more suitable as an artist’s studio than a dwelling.
• Planning permission was irrelevant as the studio use was lawful and no enforcement notice was issued.
• If the Tribunal finds The Old Summer House residential, Multiple Dwellings Relief should be available as an alternative relief.
• The statutory interest imposed was excessive and operated as a penalty due to the delay in HMRC’s enquiry.

Respondents' Arguments

• The Old Summer House was residential property at the effective date as defined by section 116(1)(a) FA 2003, which requires consideration of whether the property is used or suitable for use as a dwelling.
• The property was not in use as a dwelling but was suitable for use as a dwelling based on its physical attributes, including kitchenette, shower room, and rooms capable of being bedrooms.
• The existence of the commercial lease did not affect the physical suitability of the property for residential use; only the "bricks and mortar" features are determinative.
• HMRC relied on Upper Tribunal decisions (Fiander and Doe) that apply an objective, multi-factorial test considering physical condition, access, and other circumstances but not intentions or lease restrictions.
• The Appellant’s reliance on withdrawn guidance SDLTM00365 was misplaced as it had no legal force and was superseded before the statutory amendment period expired.
• Multiple Dwellings Relief was not claimed timely, and the Tribunal has no jurisdiction to allow a late claim after the statutory deadline.
• Statutory interest is automatic on unpaid tax and not subject to appeal; the Appellant could have mitigated interest by paying earlier.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal first considered the statutory definition of residential property under section 116(1)(a) FA 2003, which includes buildings used or suitable for use as a dwelling at the effective date. The Tribunal applied the multi-factorial objective test from the Upper Tribunal decisions, particularly Fiander, requiring consideration of physical attributes and all relevant facts and circumstances.

The Tribunal found The Old Summer House physically possessed features suitable for residential use, such as a kitchenette and shower room, but acknowledged its unusual layout favored use as an artist’s or photographic studio. Crucially, the Tribunal considered the commercial lease granted two weeks before the effective date, which restricted residential use and prohibited sub-letting. The lease was binding and its breach would lead to forfeiture and damages.

Given these restrictions and actual use at the effective date, the Tribunal concluded The Old Summer House was not suitable for use as a dwelling at that time. This supported the availability of Mixed Use Relief, subject to the anti-avoidance provisions in section 75A FA 2003.

The Tribunal then examined section 75A, which disregards scheme transactions involving multiple linked dealings that reduce SDLT payable compared to a single notional transaction. The grant of the commercial lease was held to be a scheme transaction connected to the acquisition. The Tribunal therefore disregarded the lease and treated the acquisition as a notional single transaction without the lease.

Under this notional transaction, Multiple Dwellings Relief applied as the acquisition involved multiple residential properties. The Tribunal found no statutory requirement to claim or amend a return to claim relief for the notional transaction under section 75C. The Respondents’ refusal to allow a late claim for Multiple Dwellings Relief was thus overridden by the anti-avoidance provisions.

The Tribunal rejected the Appellant’s appeal against statutory interest, noting it is automatic on unpaid tax and not subject to appeal, and that the Appellant could have mitigated interest by paying earlier.

Holding and Implications

The Tribunal ALLOWED THE APPEAL IN PART. It held that Mixed Use Relief was not available due to the application of section 75A FA 2003, which disregarded the commercial lease as part of a scheme of transactions. Instead, SDLT was to be assessed applying Multiple Dwellings Relief on the notional single transaction without the lease.

The appeal against the imposition of statutory interest was DISALLOWED.

The decision results in a reduction of SDLT payable by the Appellant compared to the Respondents’ original assessment. No new precedent was set beyond the application of established legal principles and previous Upper Tribunal authorities. The ruling clarifies the interaction of SDLT reliefs with anti-avoidance provisions in complex property transactions involving linked leases.