Martin Lynch & Anor v The Commissioners for HMRC

With the consent of the parties, the form of the hearing was V (video). All parties attended remotely and the hearing was held on the Tribunal’s VHS platform. The hearing had originally been listed as a face to face hearing but owing to train strikes on the day of the hearing, it was transferred to video. The documents to which we were referred are a Hearing Bundle of 209 pages, a Joint Authorities Bundle of 398 pages, the Skeleton Arguments of both parties and a recent case not included in the bundles (Harjono & Santoso v HMRC [2024] UKFTT 00228 (TC)) which had been drawn to the notice of the parties by the Tribunal. We also heard witness evidence from Mrs Julia Lynch.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

References to legislation below are to the Finance Act 2003 unless otherwise stated.

Mr and Mrs Lynch appeal against a closure notice dated 13 January 2023 denying an overpayment relief claim under paragraph 34 of schedule 10. The Appellants purchased a property, which included a substantial house (the Main House), a converted barn, a cottage and 22 acres of land (the Property), on 7 May 2021 for £3,075,000 and paid Stamp Duty Land Tax (SDLT) of £258,750 on the basis that the Property was wholly residential but Multiple Dwellings Relief applied. The rates were the higher rates applicable to additional dwellings under Schedule 4ZA. The claim for Multiple Dwellings Relief is not disputed.

On 5 May 2022, the Appellants’ agent, Womble Bond Dickinson (UK) LLP made an in time claim for overpaid tax under paragraph 34 of schedule 10 on the footing that the property was “mixed use”, and that part of the consideration should be apportioned to 18 acres of agricultural land. The amount reclaimed was £104,433.

Following an enquiry, HMRC issued the closure notice reducing the claim to nil.

The Appellants appealed to HMRC which maintained its view. Following a statutory review which upheld the closure notice, the Appellants made an in-time appeal to the Tribunal on 19 May 2023.

The issue we must determine is whether the Property is wholly residential or is mixed use by virtue of part of the property being used for the grazing of cattle.

The burden is on the Appellants to show, on the balance of probabilities, that the closure notice is incorrect.

We have carefully considered all the evidence, submissions and cases referred to by both parties but have not found it necessary to refer to all of them in this decision.

The law is not in dispute.

If the Property is wholly residential, SDLT is payable at the rates set out in Table A in section 55 as modified by paragraph 1(2) schedule 4ZA, which applies higher rates of SDLT to the purchase of additional dwellings. If the Property is “mixed use” that is, if it includes land which is non-residential, the lower rates in Table B in section 55 apply.

The definition of “residential property” is set out in section 116(1). The definition of a “dwelling” in paragraph 18 of schedule 4ZA is essentially the same. Section 116(1), so far as material, is as follows:

“116 Meaning of “residential property”

(1)

In this Part “residential property” means—

(a)

a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use, and

(b)

land that is or forms part of the garden or grounds of a building within paragraph (a) (including any building or structure on such land), or

(c)

an interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b);

and “non-residential property” means any property that is not residential property.” (emphasis added)

In the present case, the question is whether the 18 acres of land which had been used to graze cattle fall within paragraph (b) above as land that forms part of the garden or grounds of a dwelling.

We have carefully considered the following cases referred to by the parties although we do not refer to all of them in our decision. Hyman v Revenue and Customs Commissioners [2019] UKFTT 469 (TC), Hyman and Others v HMRC [2021] UKUT 68 (TCC), Hyman and Goodfellow v HMRC [2022] EWCA Civ 185, Myles-Till v HMRC [2020]UKFTT 127, Ladson Preston v HMRC [2022] UKUTT 301 (TCC), Gary Withers v HMRC [2022] UKFTT 00433 (TC), James Faiers v HMRC[2023] UKFTT 00297 (TC), The How Development 1 Ltd v HMRC [2023] UKUT 00084 (TCC), Thomas Kozlowski v HMRC [UKFTT] 711 (TC), Modha v HMRC [2023] UKFTT 783 (TC) and 39 Fitzjohns Avenue Ltd v HMRC [2024] UKFTT 28 (TC).

These findings of fact are derived from the documentary evidence in the Hearing Bundle and the witness evidence of Mrs Lynch, who we found to be an open and honest witness. The farmer whose cattle grazed the land made a witness statement but as he did not attend the hearing and was not cross-examined we attach appropriate weight to his comments.

Mr and Mrs Lynch bought the Property on 7 May 2021. The Property consisted of a large, five-bedroom house, a one-bedroom converted barn, a two-bedroom cottage, various domestic outbuildings and 22 acres of land. The land included extensive formal gardens, a kitchen garden and 18 acres of paddocks. We will use the neutral term “Grazing Land” when referring to the paddocks.

The Main House is a substantial T-shaped building with parts dating from the 16^th and 18^th centuries with later additions. The front of the house is south of and faces a road. Looking at the Property from the road, one wing of the house is on the east side of a courtyard, the barn is between the road and the courtyard at the north side of the courtyard and the cottage is at right angles to the road on the west side of the courtyard.

The kitchen garden is behind and to the right of the cottage. It is bordered by a hedge which has a gap giving entry to the main garden.

At the back of the Main House is a stone paved patio with two steps up to the main garden which extends behind the house to the south, with a small part to the east of the house and a larger area to the right of the house and behind the kitchen garden. The gardens include lawns, an area of bushes and trees referred to as “the shrubbery” and an ornamental pond with a stone bridge over it. At the end of the formal gardens, parallel with the road is a ha-ha. There is a wall along part of the ha-ha and the rest is bordered by a fence which has a gate leading into the Grazing Land.

The Grazing Land slopes down steeply from the other side of the fence. There are two rectangular paddocks enclosed by fences with a small, fenced holding area at the eastern boundary. To the right of and behind the fenced paddocks is a third, larger paddock which occupies the remainder of the Grazing Land. The Property is bordered by trees and, we assume, fences to contain the animals.

There are two public rights of way which cross the Grazing Land.

The sales brochure for the Property contained extensive descriptions of the Property together with numerous photographs. We acknowledge that this is a marketing document, but it is helpful to see how the property was presented.

The brochure states:

“This beautiful family home …occupies a superb position within the pretty… village of W…. It boasts twenty-two acres of stunning grounds and enjoys magnificent views across the Vale of Aylesbury… .”

The “Seller Insight” states:

“From the road it’s extremely pretty, but it isn’t until you go through to the back of the property that you can appreciate just how special it is; the grounds stretch out before you and the views are absolutely magnificent. …

“The grounds too are absolutely beautiful, …I rent a large proportion out to a farmer, which generates a small income, and where the boundary of the garden meets the pastureland there is a ha-ha wall, that not only keeps out any animals, but which also creates the most stunning uninterrupted view. Within the main garden area we have a small orchard, an open lawn and there’s also the remains of the water garden…”

Mrs Lynch explained that the Grazing Land could not be seen from the house because of the slope of the land. It could only be seen from the fence/ha-ha wall. The “treasured view” was of the valley and hills beyond their property and did not include the Grazing Land.

A Design and Access Statement dated September 2019 which was used by the previous owner in support of a planning application stated:

“The rear of the property comprises a small patio area, with steps leading to the extensive 18 acre grounds.”…

“The extensive 18 acre grounds are a large asset to The Main House, perfectly adequate to support the development of the existing dwelling.”

The land as far as the ha-ha and first fence constitutes the gardens of the Property. We must consider whether the 18 acres of land beyond the fence constitutes the “grounds” of the Property.

The Grazing Land had been used by a local farmer, a Mr Watts, for many years to graze his beef cattle. Having reviewed the witness evidence including photographs, screenshots of mobile phone messages, the marketing brochure and the insurance policy for the Property which included public liability insurance in relation to “[the Appellants’] legal liability arising from ownership of land situate TBC (sic) used for Let to a farmer”, we find that the land was being grazed by cattle at the Effective Date of the Transaction.

Our bundle contained an unsigned Grazing Agreement dated 21 March 2019 between the previous owner and Mr Watts the farmer. The Agreement was a licence which gave Mr Watts the right to graze and mow the Grazing Land between 1 March 2019 and 31 October 2019. The land could only be used by cattle and sheep but no bulls could be kept on the land. The Agreement was a non-transferrable, personal agreement between the parties. We were not taken to any signed or later agreement and we infer that there was none.

The consideration payable for the licence was £1,000, payable in advance. Mr Watts was also required to keep all the fences, gates and so in in proper stock proof conditions and to maintain them, preserve trees and bushes, remove weeds and moles and to prevent the land from becoming “poached” in wet weather. If the land was being damaged, the cattle had to be removed.

The Agreement expressly stated that Mr Watts did not have exclusive occupation of the Grazing Land and that the owner and his family and visitors had the right to go on the land at any time for any purpose.

The owner could get the land back at any time for any reason by giving one month’s written notice.

Mrs Lynch said that there were cattle on the Grazing Land when they went to view the Property initially and the cattle were there at completion and beyond. There were photographs showing at least a dozen cattle on the land and it seems that Mr Watts grazed between 15 and 20 cattle on the Grazing Land.

This Agreement, even if completed, ended on 31 October 2019. We were not taken to any other agreement. Mrs Lynch understood that there was an existing informal arrangement for grazing the cattle at the time of completion, possibly on the terms of the unsigned agreement, and the Appellants intended to enter into a new contract with Mr Watts to formalise matters. The Appellants were content to allow the existing informal arrangements to continue until the new arrangements were completed.

The parties did not, in the event, enter into a new contract.

Mr Watts grazed bullocks on the Grazing Land which could be aggressive. Mr and Mrs Lynch were chased by the cattle when they went onto the Grazing Land and had to take refuge on a tractor which was in the field. They also saw an extract from the local Parish newspaper detailing “incidents” in March and April (the year was not stated but Mrs Lynch said it was shortly before they bought the house) recording the fact that a lady who had been walking on one of the footpaths on the Grazing Land had been chased by “five frisky cattle” and had fallen and badly injured her ankle. Mrs Lynch said that neighbours had told her the bullocks had previously been troublesome. The Appellants were concerned about the risks and potential liability to the public.

The final straw came when the cattle got into a neighbour’s garden. Mr Lynch called the farmer and told him the arrangement could not continue and the cattle were to be removed as soon as possible. This was done a month or so later, around July 2021. The grazing during the Appellants’ period of ownership according only lasted from the time of the purchase in May 2021 until July 2021.

Given that the Appellants moved in part way through the grazing season, it may be that Mr Watts had paid the rent to the previous owner. In any event, the Appellants did not receive any rent in relation to the grazing. The only maintenance carried out was the repair of the fences when the cattle broke into the neighbour’s garden.

The grazing cattle had kept the grass on the Grazing Land short. Since the arrangement was terminated, the Appellants have had problems maintaining the land as the slope of the paddocks means that it is dangerous to use equipment to mow the grass and they have struggled to find anyone to do the work.

To summarise the position regarding the grazing arrangements:

The question we must answer is whether the Grazing Land was land that forms part of the grounds of The Main House, which is clearly a “dwelling”.

The expression “grounds” was defined at [62] of the First Tier Tribunal in Hyman.

“In my view “grounds” has, and is intended to have, a wide meaning. It is an ordinary word and its ordinary meaning is land attached to or surrounding a house which is occupied with the house and is available to the owners of the house for them to use. I use the expression “occupied with the house” to mean that the land is available to the owners to use as they wish. It does not imply a requirement for active use. “Grounds” is clearly a term which is more extensive than “garden” which connotes some degree of cultivation. It is not a necessary feature of grounds that they are used for ornamental or recreational purposes. Grounds need not be used for any particular purpose and can, as in this case, be allowed to grow wild. I do not consider it relevant that the grounds and gardens are separated from each other by hedges or fences. This may simply be ornamental, or may serve the purpose of delineating different areas of land as being for different uses. Nor is it fatal that other people have rights over the land. The fact that there is a right of way over grounds might impinge on the owners’ enjoyment of the grounds and even impose burdensome obligations on them, but such rights to not make the grounds any the less the grounds of that person’s residence. Land would not constitute grounds to the extent that it is used for a separate, eg commercial purpose. It would not then be occupied with the residence, but would be the premises on which a business is conducted.”

This formulation was considered by the First Tier Tribunal in Myles-Till, where the tribunal said at [44]-[45]:

“44.

…One must, …look at the use or function of the adjoining land to decide if its character answers to the statutory wording in s116(1) – in particular, is the land grounds “of” a building whose defining characteristic is its “use” as a dwelling? The emphasised words indicate that that the use or function of adjoining land itself must support the use of the building concerned as a dwelling. For the commonly owned adjoining land to be “grounds”, it must be, functionally, an appendage to the dwelling, rather than having a self-standing function.

This formulation is, I believe, consistent with the analysis in Hyman at [92] (sic. The correct reference is [62]), provided one reads that paragraph to the end. … the Tribunal stated that land – which I read as land under common ownership and control with the dwelling building – “would not constitute grounds to the extent it is used for a separate e.g. commercial purpose”. I read this as a very similar understanding of the meaning of “grounds” to mine here, in that use for a “commercial” purpose is a good and (perhaps the only) practical example of commonly owned adjoining land that does not function as an appendage but has a self-standing function.”

The Court of Appeal in Hyman held that it was for the Courts and Tribunals to work out the meaning of a word like “grounds” and the Upper Tribunal held that this is a multi-factorial test. No one factor is determinative and different factors may be given different weight. The Tribunal must carry out a balancing exercise, weighing up all the factors in order to come to a balanced judgement as to whether the land in question constitutes “grounds” of a dwelling.

The factors in each case depend on the facts of the case, but a number of relevant considerations have been set out in the case law. Some of the factors were summarised at [37] in 39 Fitzjohns Avenue:

“37.

These may be summarised as follows:

(1)

Grounds is an ordinary English word.

(2)

HMRC’s SDLT manual is a fair and balanced starting point (considering historic and future use, layout, proximity to the dwelling, extent, and legal factors/constraints).

(3)

Each case must be considered separately in the light of its own factors and the weight which should be attached to those factors in the particular case.

(4)

There must be a connection between the garden or grounds and the dwelling.

(5)

Common ownership is a necessary condition, but not a sufficient one.

(6)

Contiguity is important, grounds should be adjacent to or surround the dwelling.

(7)

It is not necessary that the garden or grounds be needed for “reasonable enjoyment” of the dwelling having regard to its size and nature.

(8)

Land will not form part of the “grounds” of a dwelling if it is used or occupied for a purpose separate from and unconnected with the dwelling.

(9)

Other people having rights over the land does not necessarily stop the land constituting grounds. This is so even where the rights of others impinge on the owners’ enjoyment of the grounds and even where those rights impose burdensome obligations on the owner.

(10)

Some level of intrusion onto (or alternative use of) an area of land will be tolerated before the land in question no longer forms part of the grounds of a dwelling. There is a spectrum of intrusion/use ranging from rights of way (still generally grounds) to the use of a large tract of land, historically in separate ownership used by a third party for agricultural purposes under legal rights to do so (not generally grounds).

(11)

Accessibility is a relevant factor, but it is not necessary that the land be accessible from the dwelling. Land can be inaccessible and there is no requirement for land to be easily traversable or walkable.

(12)

Privacy and security are relevant factors.

(13)

The completion of the initial return by the solicitor on the basis the transaction was for residential property is irrelevant.

(14)

The land may perform a passive as well as an active function and still remain grounds.

(15)

A right of way may impinge an owner’s enjoyment of the grounds or even impose burdensome obligations, but such rights do not make the grounds any less the grounds of that person’s residence.

(16)

Land does not cease to be residential property, merely because the occupier of a dwelling could do without it.”

We will first consider the applicable factors and apply them to the facts of this case and then weigh the various factors in the balancing exercise.