Suterwalla v HMRC - A significant mixed-use SDLT decision and rare recent success for the taxpayer

The taxpayer had filed their SDLT return on the basis the non-residential mixed-use rates should apply to the purchase.  They did this on the basis that the Property consisted of a paddock to the rear of the property (which was mentioned in the sales particulars) in addition to the main residential house, tennis court and garden.

The taxpayers granted a grazing lease of the paddock for an annual rent of £1,000 on the completion date.  The taxpayers argued that the paddock did not form part of the garden or grounds of the building and that the grazing lease demonstrated that the paddock land was used for a separate commercial use from and including the day of completion.  As a result, they filed their return on the basis that the transaction consisted of residential and non-residential property, so the non-residential rates applied to the whole purchase.

In Brandbros Ltd v HMRC [2021] HMRC successfully argued that the grant of a commercial lease over a garage on the same date as completion was a separate transaction with no impact on the purchase of the neighbouring dwelling. 

In this decision, HMRC argued that a) the entire property was residential on the basis the property was sold as single folio and b) the taxpayers could not grant the commercial lease until they had completed the purchase of the property and therefore at the time of completion, there was no commercial use on the land.  HMRC argued that the decision in Brandbros should be followed and the lease granted on the completion date should be ignored.

The tribunal agreed with the taxpayers' submission and found that the non-residential rates should apply to the purchase of the property.

In doing so, the tribunal distinguished from the decision in Brandbros and instead followed the dicta of Lord Oliver in Abbey National v Cann.  The "scintilla temporis" (a time between completion and the grant of the grazing lease) was ignored to the extent that the existence of the lease granted on the completion date was relevant in determining the use of the land on the date of completion.

The tribunal's further reasons for allowing the appeal by the taxpayers included:

• the fact that the paddocks was not close to the dwelling house, nor was visible from the dwelling house;
• the paddock was used for a separate purpose unconnected with the dwelling house;
• the grazing lease is commercial; and
• the Land Registry title to the dwelling house and gardens was distinct from that of the paddock.

This case is significant, as it is a rare recent victory for a taxpayer in respect of the mixed-use/non-residential rates of SDLT.  As with all such cases, the decision very much turns on the specific facts but the discussion regarding the timing of the grant of the commercial lease and the tribunal's reluctance to follow the decision in Brandbros is significant.  It will be interesting to see whether HMRC decide to appeal.