Tretyakov v Revenue and Customs (STAMP DUTY LAND TAX - mixed use - whether part of a building was suitable for use as a dwelling - s.116(1)(a) Finance Act 2003)

Factual and Procedural Background

This appeal concerns the classification of a building known as the Bacon Factory, purchased by the Appellant in June 2021 for £5.75 million. The Appellant submitted a Stamp Duty Land Tax ("SDLT") return treating the building as mixed use, resulting in a liability of £277,000. The Respondents contended the building was entirely residential, which would increase the SDLT liability to £761,250, a difference of £484,250. The Appellant did not challenge the procedural aspects of the Respondents' enquiry or their calculation of SDLT if the appeal failed. The sole issue for determination was whether the building was wholly residential or mixed use, with the burden of proof on the Appellant to demonstrate the building was not entirely residential.

The evidence included witness statements from the Appellant, his conveyancing solicitor, the vendor, and two occupiers of the property at the time of purchase. The evidence of the occupiers was considered particularly relevant and credible, despite minor inconsistencies. The building comprises three floors; the upper two floors were converted to residential use by 1985, while the ground floor remained designated for light industrial use and subject to business rates. The ground floor was renovated between 2017 and 2018, intended originally for commercial use as a gin distillery, which did not materialise. Subsequently, part of the ground floor was used by a company engaged in creating home accessories, involving storage and light commercial activities without plant or machinery. Marketing materials described the ground floor as containing a bar, games room, gym, sauna, and storage areas. The Appellant submitted SDLT returns treating the ground floor as factory use, which was challenged by the Respondents leading to this appeal.

Legal Issues Presented

1. Whether the building purchased by the Appellant was wholly residential or mixed use for the purposes of SDLT liability under the Finance Act 2003.
2. Whether part of the building, specifically the ground floor, was suitable for use as a dwelling as defined by section 116(1)(a) of the Finance Act 2003.

Arguments of the Parties

Appellant's Arguments

• The ground floor had historically been used for commercial purposes and was renovated with a view to continued commercial use, evidenced by planning restrictions, payment of business rates, and the physical characteristics such as concrete flooring, lack of insulation, roller door, and restricted windows.
• The presence of a fireproof glass enclosure was consistent with commercial rather than residential use.
• The separate energy performance certificate and the use of commercial sale contract terms supported the commercial nature of the ground floor.
• The rear part of the ground floor was used for hospitality, not living, and the ground floor comprised only one-third of a large building, suggesting no need for residential use of that part.
• Marketing materials were designed for sales purposes and should not be relied upon as accurate descriptions of the property’s use.
• Commercial use at the relevant time negated suitability for use as a dwelling.

Respondents' Arguments

• The 2017-2018 renovation fundamentally changed the character of the ground floor, making historical commercial use largely irrelevant.
• The ground floor was used flexibly, with personal use of the rear part and the front part used by the company for light commercial activities without permanence or installation of plant or machinery.
• The commercial occupation by the company was temporary and could be terminated, allowing the ground floor to be used as part of the dwelling.
• The physical characteristics, including lack of insulation and natural light in the garage area, were consistent with residential use as a garage.
• Planning restrictions were relevant but not determinative, and the actual use for personal purposes carried greater weight.
• Payment of business rates was not significant, as properties remain on the non-domestic rates register unless an application is made to remove them.
• Marketing materials and the construction company’s description supported the suitability of the ground floor as part of the dwelling.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal examined the statutory definition of residential property under section 116(1)(a) Finance Act 2003, focusing on whether the ground floor was "suitable for use as a dwelling" at the date of completion. Drawing on Upper Tribunal guidance, the Tribunal emphasized a purposive approach that considers the essential characteristics and nature of the property, its physical attributes, recent use, and history.

The Tribunal found that although the ground floor had historically been used for commercial purposes and part was occupied by a commercial business at the relevant time, the 2017-2018 renovation significantly altered its character. The ground floor included features typical of residential use, such as a bar, games room, sauna, wine cellar, gym, and garage, with no plant or machinery associated with commercial use. The Tribunal accepted that the garage area, despite being used commercially, was suitable for residential use as a garage and storage.

Planning restrictions and payment of business rates were considered relevant factors but not decisive. The Tribunal gave greater weight to the actual use of the ground floor for personal purposes prior to the commercial occupation and the physical suitability of the space for residential use. Marketing materials and the construction company’s descriptions corroborated the suitability for residential use.

The Tribunal rejected the Appellant’s argument that current commercial use precluded suitability for residential use, noting that suitability does not require immediate readiness or exclusive residential use. The lack of separation between floors and the integration of the ground floor with the upper residential floors further supported the conclusion that the ground floor was suitable for use as part of the dwelling.

Holding and Implications

The Tribunal DISMISSED the appeal, holding that the Bacon Factory, including the ground floor, comprised residential property in its entirety for the purposes of SDLT.

The direct effect is that the higher SDLT rates applied by the Respondents are due. No new legal precedent was established beyond the application of existing principles to the facts of this case.