Anne-Marie Hurst v The Commissioners for HMRC

This is an appeal bought by Mrs Anne-Marie Hurst (Appellant) in respect of a closure notice dated 17 August 2022, issued by HM Revenue & Customs (HMRC) pursuant to paragraph 23, Schedule 10 to Finance Act 2003 (all statutory references are to Finance Act 2003 unless otherwise indicated), in which they concluded that the residential rate of stamp duty land tax (SDLT) was due on the purchase of Sortridge Manor (Property). The Appellant had declared SDLT on the purchase at the non-resident rates. The closure notice increased the Appellant’s assessment to SDLT by £47,750.

The Property is a 16^th century Grade II listed manor house in Devon. On 27 July 2021 a contract for sale was agreed between the Appellant and the previous owners and the freehold was transferred for £1,800,000 on 12 August 2021.

On 12 August 2021 the SDLT return for the transaction was completed and filed on the basis that, on 12 August 2021 (the effective date of the transaction (EDT)) only part of the Property was used for residential purposes such that the rate at which SDLT was due was to be determined in accordance with Table B of section 55 and not Table A. The Appellant considered that the non-residential rate under Table B was appropriate because the Property did not meet the definition contained in section 116 of a residential property because either: a) the Property had been used as a hotel or inn or similar establishment; or b) by reason of an agricultural agreement pursuant to which a farmer used part of the grounds for grazing and hay harvesting and to provide ready access to other land tenanted/used by the farmer.

HMRC opened an enquiry into the return on 26 April 2022 and following correspondence with and the provision of information by the Appellant, on 17 August 2022 HMRC issued the closure notice.

The Appellant made an in-time appeal to HMRC who, following the issue of a view of the matter letter, upheld the decision on review. The Appellant notified her appeal to the Tribunal 9 days late. Whilst her appeal was strictly out of time HMRC did not object to the appeal being heard. As the delay was short, in the context of a 30 day time limit, we did not consider the delay to be serious (though a failure to adhere to a statutory time limit will always be significant) and applying the relevant test in respect of accepting a late appeal we determined that the appeal would be admitted.

Section 42 charges SDLT on “land transactions”. Land transactions are defined in section 43 as being the acquisition of a chargeable interest in the main subject matter together with any interest or right appurtenant or pertaining to the interest so acquired (section 43(6)). Section 48 defines a chargeable interest as “an estate, interest, right or power over any land in England.”

The rate at which SDLT is charged in respect of any particular land transaction depends on whether the interest acquired is an interest in residential property or not. Section 116 provides the definition of residential property:

Section 55(1B) provides that the rates of SDLT applicable to a transaction consisting entirely of residential property shall be taxed at the rates specified in “Table A” and if the transaction “consists of or includes land that is not residential property” that the rates in Table B shall apply.

In the present appeal there are two narrow issues to be determined.

The parties are agreed that the Property is suitable for use as a dwelling meeting the provisions of section 116(1). However, and by virtue of section 116(3)(f) and (4) the Appellant contends that as, on the EDT, the Property had been used as a “hotel or inn or similar establishment” (HISE) no account is to be taken of its suitability for use and collateral use as a dwelling. HMRC contend that the Property was not used and/or there is insufficient evidence of it being used as an HISE. We must determine the meaning of HSIE and whether, on the facts of this case, the Property was used as an HISE by the previous owners.

The Appellant also contends that she is entitled to pay SDLT by reference to the rates in Table B because part of the Property, the meadow, does not constitute its grounds within section 116(1)(b) as it was used by a farmer under a commercial lease/licence and the price was therefore paid for the dwelling and non-residential property. HMRC say that any arrangement with the farmer was a barter of convenience and that the meadow is part of the grounds of the dwelling. We must determine, on the facts whether the meadow is part of the grounds of the dwelling or used for commercial purposes.

After the issue of the closure notice the Appellant also raised an alternative contention that of the £1,800,000 paid to the vendors £100,000 had been paid for assets associated with the business and not paid as consideration for the Property. That is not a matter which we have the jurisdiction to determine. Our jurisdiction is limited to “the matter in question” as defined in section 49I Taxes Management Act 1970. As confirmed most recently by the Upper Tribunal in the matter of Shinelock Ltd v HMRC [2023] UKUT 107 (TCC) the matter in question in relation to an appeal against a closure notice is the conclusion notified in the closure notice (albeit not limited to a stated reason for that conclusion) and the associated amendment arising from such conclusion. As HMRC have never considered whether the consideration paid under the contract for purchase of the Property included any other assets there can have been no conclusion as to the correct valuation of the Property for SDLT purposes. We informed the Appellant at the hearing that we could not therefore consider this argument.

There is no dispute between the parties that at the EDT the Property was a building suitable for use and in fact used as a dwelling and thus meets the description of a residential building as provided in section 116(1) unless excluded by virtue of subsections 116(3) and (4). They agree that if it can be shown, by reference to a multifactorial assessment, that the Property was “used as a hotel or inn or similar establishment” at or immediately before the EDT then it is not a residential building for SDLT purposes and is therefore chargeable to SDLT at the non-residential rate in Table B.

However, there is a dispute as to how the section 116(3)(f) is to be interpreted (which we deal with here) and as to the facts (which we address below from paragraph 48).

The Appellant’s case is simply put: she contends that whether the Property was used as a HISE is purely a question of fact. She contends that the statutory provision uses language bearing its ordinary meaning as explained by HMRC is the guidance issued in connection with VAT: VATLP13360 which sets out the factors to be considered when determining when a property owner is granting the right to occupy a “hotel, inn, boarding house or similar establishment”.

The Appellant also relies on the judgment of this Tribunal in Goode Cuisine Company Limited v HMRC 2018] UKFTT 163 (TC). That case did not concern whether SDLT was due under Table A or Table B but whether alternative provisions requiring a higher rate of SDLT applied. The question for determination was whether the taxpayer in that case acquired the property in question with the intention that it be exploited as a source of income in the course of a qualifying trade defined to involve “in its normal course, offering the public the opportunity to make use of, stay in or otherwise enjoy the dwelling as customers of the trade on or at least 28 days in any calendar year” and was thereby relieved from the higher SDLT rate. HMRC had denied Goode Cuisine the relief sought on the basis that once the taxpayer had converted the property as intended for the provision of bed and breakfast accommodation the property would cease to be a dwelling with the consequence that the property would no longer be a dwelling used for a qualifying purpose as defined. In determining that question Judge Beare considered the provisions of section 116(3)(f), concluding that as the property was to be used for bed and breakfast accommodation it was thereby excluded from the definition of dwelling by virtue of that provision. In so doing, and not without some difficulty, the sought after relief was denied on the basis that the property in question would cease to be a dwelling once it had been converted into a bed and breakfast.

Relying on the judgment of Upper Tribunal in Ladson Preston Limited and another v HMRC [2022] UKUT 00301 (TCC) (Ladson) at paragraph 30 HMRC contend that the charge to SDLT is intended to be “capable of straightforward application without the need for a detailed factual enquiry into matters that might be uncertain, such as relevant persons’ subjective intentions as to the future use of the land.”

Reliant on the Court of Appeal judgement in Fanning v HMRC [2023] EWCA Civ 263 (Fanning) at paragraph 30 (quoting from the Court of Appeal judgment in Pollen Estate Trustee Co Ltd v HMRC [2013] EWCA Civ 753) HMRC contend that we are to apply a purposive interpretation to the language of the provision i.e. we are to have regard to the purpose of the provision and interpret its language, so far as possible to give effect to its purpose. We are to determine the nature of the transaction to which the taxing provision is intended to apply and then to decide whether the actual transaction answers the statutory description. In doing so we should seek to avoid an absurd result (see Fanning paragraph 31 quoting from the Court of Appeal judgment in Eynsham Crickey Club v HMRC [2921] EWCA Civ 225).

In this context it was submitted that the word “used” could not be given a meaning which permitted any use of the Property for the provision of accommodation for paying guests, however small, so as to escape the higher residential SDLT rate. They contend that the use of a property as a dwelling is not one which can easily be changed and should not be fluid. A definite and clear change of use to a HISE should be objectively determined, definite and continuous.

We are invited to consider the multifactorial exercise we must undertake from the standpoint of the “objective observer” by reference to the following factors:

HMRC accepted that the above list was not derived from any particular source and, to an extent, reflected the matters with which they take issue in the present case. However, they contended it was a sensible framework to be used to determine whether the use of the Property was as an HISE or solely as a dwelling.

During the hearing we invited Mr Thompson-Jones to address us on the appropriateness of referring to VATLP11360 in light of the judgement of the Court of Justice of the European Union in Elisabeth Blasi v Finanzamt Munchen I C-346/95 and the Court of Appeal in HMRC v FortySeven Park Street Ltd [2019] EWCA Civ 849 (47PS) . We did so in part because of the Appellant’s reliance on VATLP11360 but also on the basis that we considered that Parliament’s adoption of an all but identical statutory phrase was unlikely to have been coincidental. We were concerned to understand how the same words should be construed within a broad context of two transaction taxes. We note that under Item 1 Group 1 Schedule 9 Value Added Taxes Act 1994 (VATA) the granting of an interest in land is exempt from VAT unless the grant is of a type excluded from exemption. One of the exclusions is for an interest granted in a “hotel, inn, boarding house or similar establishment, of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering”. Note 9 to Group 1 describes a similar establishment as including “premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food, which are used by or held out as being suitable for use by visitors or travellers”. For SDLT the transaction in question is not the right to sleeping accommodation but the more substantive rights of ownership in the whole property but the HISE exclusion is by reference to having used the property in a way which would fall outside the exemption for VAT purposes and, in our view, there was at least some read across.

In Blasi the CJEU concluded that the provision of accommodation in fully furnished rooms with cooking facilities and in respect of which bedlinen and communal (but not room) cleaning facilities were provided by the property owner was accommodation which was taxable under the exclusion from exemption in respect of “hotel, inn, boarding house or similar establishment”. In 47PS the Court of Appeal determined that supplies of fractional interests in a property with the services and amenities of a hotel were excluded from exemption because they represented an active rather than passive exploitation of property and that the property a similar establishment to a hotel, inn or boarding house.

Mr Thompson-Jones accepted that VATLP11360 could appropriately be used as a starting point when considering what a HISE was. He noted that the phrase chosen by Parliament in 2003 was not identical to that used in Group 1 Schedule 9. In particular, that “boarding house” had not been included and the more expansive description requiring the provision of sleeping accommodation was absent.

He also submitted that the nature of the taxes and thereby the purpose of the legislative provisions would drive different conclusions as to the correct interpretation of the respective provisions. It was contended that as a tax on transactions in which the default position was taxation and to which exemption under Group 1 was therefore an exception it was appropriate to construe “hotel, inn, boarding house or similar establishment” expansively but that was not the case for SDLT.

Relying on 47PS and its reference to Régie communale autonome du stade Luc Varenne v Belgium C-55/14 HMRC accepted that both for VAT and SDLT purposes it was relevant to consider whether the exploitation of the property was passive or active. The greater the enhancement of a guest’s stay with services provided by the property owner/operator, the more likely a conclusion that there was a business operation akin to a hotel, in or similar establishment. However, it was submitted that for VAT the identification of active exploitation was critical as what was being assessed was the activity of exploitation (i.e. the services provided by the supplier) whereas for SDLT there was a more fundamental assessment of the nature and extent of the use of the Property.

HMRC challenged a conclusion that satisfying the tests listed in VATLP11360 could be sufficient to establish that the Property had been used in the sense required for section 116(3)(f) to apply. Particularly as subsection (4) permitted any other use or suitability of use to be disregarded and the property to be treated as non-residential. HMRC contended that it was entirely inappropriate to consider the subjective purpose of the previous owners and any evidenced intention to run a boutique hotel or B&B. What was required to be established was whether, objectively, the Property had been so used in a substantive sense preceding the EDT and that such use had not ended.

Mr Thompson-Jones considered Goode Cuisine to be of no material assistance to us as it concerned relief for a qualifying trade carried on from a dwelling.

We accept HMRC’s submission that we are to interpret the provisions of section 116 including the interaction between subsections (1), (3) and (4) purposively. We understand that the intention of Parliament in enacting the higher residential rate for SDLT is to tax residential property at the rates prescribed in section 55 Table A and non-residential property at the rates specified in table B by reference to the nature of the property which is acquired as a result of the relevant land transaction. Unlike VAT there is no presumption of taxation under Table A requiring a wide interpretation of residential property and a narrow construction of what is to be included within non-residential. However, consistently with the judgment in Hyman and Goodfellow v HMRC [2022] EWCA Civ 185 we are not to interpret the broad language of the definition of residential property in a way which narrows its application.

We start with considering the structure of section 116. Section 116(1) provides that a building that is used or suitable for use as a dwelling (including the land representing grounds or garden and any rights benefiting the building) is residential property. Pausing there, if it looks like a dwelling and is used or suitable for use as a dwelling it will meet the terms of section 116(1).

That definition is then extended by the provisions of section 116(2) to include buildings used to provide residential accommodation for school pupils, students (other than halls of residence) and the armed forces. We consider that these provisions ensure that a building that may not have the most common characteristics of a dwelling in the ordinary sense of the word are nevertheless expressly scoped into residential property. Thus, they may not have the objective characteristics of a dwelling but will nevertheless are treated as such for SDLT purposes.

However, the definition of residential property is then narrowed by refence to the provisions of subsection (3). Buildings meeting the characteristics of a dwelling which are used for any of the listed purposes, including as a HISE, are scoped out of residential property.

During the hearing we discussed with the parties how, for example, the provisions of section 116 would apply to a particular hotel in Plymouth. That hotel is a comparatively newly constructed/redeveloped property which has none of the usual characteristics of a dwelling externally or internally. But it provides sleeping accommodation to those visiting Plymouth. The rooms provide ensuite accommodation and there is a bar/reception that provides breakfast and food and drink throughout the day and the facility to play board games. There is also a gym. Rooms are cleaned daily.

In light of that discussion, it is our view that a hotel of this type would be determined as non-residential applying section 116(1) alone as it is not a building, and the rooms are not part of a building, used or suitable for use as a dwelling in the ordinary sense. In this context we have regard to the House of Lords judgment in Uratemp Ventures Ltd v Collins [2001] UKHL 43. That case concerned whether a hotel room was “let as a separate dwelling” for the purpose of determining whether the occupant was a protected tenant. The House of Lords determined that for the purposes of section 1(1) Housing Act 1988 “dwelling” was not a term of art, but a familiar word ordinarily used to connote a place where someone lives, regarding and treating it as home with the associated amenities. Whilst a hotel, of the type we discussed, might offer the facilities associated with a dwelling (a place to sleep, facilities for personal hygiene, and a place to eat, though not necessarily cook) they would objectively be more likely to be considered to be a place where someone stayed rather than where they lived or saw as home.

In our view subsection 116(3) applies to scope out of the definition of residential property a building which has all the ordinary characteristics of a dwelling, but which is nevertheless used as a HISE.

The HMRC guidance on section 116(3)(f) as contained in SDLTM00375 “Scope: what is chargeable: land transactions: residential property – special types of accommodation” provides:

As indicated, there is more substantive guidance in VATLP11360 setting out HMRC’s position on “What is a ‘similar establishment’ to a hotel, inn or boarding house?: characteristics and functions associated with hotels, inns and boarding houses.” This guidance concerns how HMRC will determine the VAT liability of supplies from such establishments ensuring the taxation of services involving the active (as distinct from passive) exploitation of land and property.

VATLP11360 sets out a list of characteristics and functions often associated with hotels, inns and boarding houses:

After careful reflection we consider that Parliament’s use of the phrase “hotel, inn or similar establishment” in section 116(3)(f) was intended to exclude from the definition of residential property a commercial enterprise involving the provision of sleeping accommodation to paying guests together with the provision of additional amenity over and above the pure sleeping accommodation and that there is a significant overlap between the test to be applied under section 116(3)(f) and Item 1 Group 1 Schedule 9 VATA though they are not synonymous. As HMRC accept it is therefore not inappropriate to consider the range of factors identified un VATLP11360 in determining whether a supply associated with the provision of sleeping accommodation would be subject to VAT when considering whether the property from which such supplies are made is operated as a HISE at least as a starting point. We anticipate that where the supplier of such services has sufficient turnover to be registered for VAT it is unlikely that HMRC would even dispute that for SDLT purposes a property offering such services was non-residential. Where the business is not of sufficient size to be VAT registered that does not, in our view, preclude a conclusion that the property is an HISE, if appropriate services are provided. However, plainly, where there is a level of use/operation which is sufficiently insignificant it may well preclude a conclusion that the property in question is used as a HISE.

Where that line is drawn is not to be determined by way of a fixed test with any particular factor being conclusive but whether a particular property has been used as a HISE will be determined by an objective assessment of all the facts and circumstances to determine in an ordinary sense, whether the property was used to provide sleeping accommodation with additional amenities commonly provided by hotels, inns and similar establishments which we would consider plainly includes bed and breakfasts (as apparently accepted by HMRC by reference to their guidance SDLTM00375.

Given that it is the purchaser who is liable to SDLT and, in accordance with the guidance/direction provided in Ladson, the task for us is not to undertake a detailed factual enquiry into matters that might be uncertain or difficult to ascertain but to assess the evidence available to us objectively determine how the previous owners actually used the Property. In the context of a HISE which offers services to the public that should be ascertainable from publicly available information and without recourse to the previous owners. However, it will be open to any Appellant to supplement such publicly available evidence with such other evidence as they have in their possession.

Once it is determined that the property in question has been relevantly used as a HISE then, the consequence of section 116(4), is that its suitability and/or partial use as a dwelling is ignored. We consider that the effect of section 116(4) requires us to be cautious to ensure that the commercial use as a HISE is sufficient to justify that consequence. However, such caution is part of the overall assessment and challenge in the multifactorial exercise as, by reference to cases such as Sloss v Revenue Scotland [2021] FTSTC 1 and Withers v HMRC [2022] UKFTT 433 (TC) it has been held that Table B rates can apply even when, certainly by reference to the property as a whole and the value of it, commercial use is not significant.

Once a HISE the property is excluded from the definition of dwelling until it is no longer so used but is nevertheless suitable for use and/or used as a dwelling. This conclusion is consistent with that reached in Goode Cuisine. We therefore agree with HMRC that there will be some degree of permanence necessary for the use of a property to move from exclusively residential to used as an HISE but that requirement does not, in our view, preclude it ceasing to be so used or require the level of permanence intimated by HMRC.

The test to be applied in determining whether the Property is non-residential by virtue of the arrangements for use of the meadow by a farmer is comparatively settled.

A summary of the test to be applied is set out in Faiers v HMRC [2023] UKFTT 212 (TC) (at paragraph 44). Where a property has significant grounds, they will be considered to be “of” the dwelling (and thereby treated as residential property) where, having carried out a multi factorial assessment of all the evidence it is established that the grounds are in common ownership and continuous with the dwelling and are not used for a purpose separate from and unconnected with the dwelling, usually for a commercial purpose.

As I determined in Modha v HMRC [2023] UKFTT 783 (TC) where the owner of a dwelling with grounds enters into arrangements for the management of pasture in circumstances which represent a barter of convenience i.e. it suits the owner of the dwelling to permit someone else to manage the pasture thereby avoiding the need to pay someone to do it, in return for a small payment from the farmer who also benefits from having a low cost place to graze animals or access to grass/hay the arrangements will not represent a separate and unconnected use of the land/grounds.

We were provided with a substantial bundle of documents in a hearing bundle, a supplementary bundle and some additional lose documents handed up at the hearing. The Appellant also provided a witness statement and “statement of case” in which she explained the use to which she understood the previous owners had put the Property.

HMRC did not ask the Appellant to give sworn testimony. Mr Thompson-Jones was reminded that he should ensure that any evidence contained in the Appellant’s witness statement or in the oral narrative provided to the Tribunal and which was not accepted by HMRC was to be challenged by questions put to the Appellant and that otherwise we would accept what was in the statement and said as unchallenged evidence. Though the hearing was conducted relatively informally and in a more discursive way than might have been the case had the Appellant been sworn and formally cross examined we were careful to ensure that Mr Thompson-Jones was given full opportunity to challenge evidence as necessary. In the main he did not choose to do so.

We did not have evidence or a statement from the previous owners. As indicated we do not consider this to be necessary. We did however, have indirect evidence of conversations between the Appellant and the previous owner and we had contemporaneous online reviews provided by customers of the previous owner. Under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 we have wide powers to admit evidence which might be excluded in other court proceedings. As such, we are entitled to admit hearsay evidence without the formalities required for its admission in other courts. We are entitled to place such weight on hearsay evidence as we consider appropriate in accordance with the overriding objective to deal with matters justly and fairly.

We note that in light of our conclusion on the test to be applied in determining whether the subject matter of a chargeable interest meets the requirements of section 116(3)(f) it will almost inevitably be the case that the Tribunal will need to determine the use to which a property is put by reference to circumstantial (i.e. public sources of evidence) and/or hearsay evidence. Sometimes the circumstantial evidence will lead to an obvious answer as to the use to which a property was put. But where it is not clear the Tribunal will need to assess the evidence in the round as best it is able and it is likely that in doing so will need to give weight to hearsay evidence.

The Appellant has a range of experience and qualifications. Relevantly, her career history includes time spent working as the entrepreneur in residence at Oxford Innovations and with the big four accountants where she acted as an advisor to small and medium sized businesses. As a consequence, she has a strong familiarity with how to assess the viability of a business and did not therefore need to appoint advisors to assist her in assessing the commercial viability of the purchase of the Property, she could use her own knowledge and assessment of the Property as it was presented and the information she was provided.

Prior to the purchase of the Property the Appellant had lived in a manor house in Cornwall which she operated as a wedding venue and from where holiday accommodation was provided. She also has a business making herbal sparkling wine.

She was approached by the estate agent selling the Property before the marketing material was complete and prior to any formal steps to market it were taken because the agent was aware of her interest in purchasing premises of the type offered at the Property from which she could live and continue to operate a similar business to that operated in Cornwall. She was told that the previous owners wanted to sell quickly for family reasons.

The Appellant first visited the Property on 27 May 2021. On viewing the Property the Appellant considered that it was a highly attractive business opportunity. She subsequently visited for a longer meeting with the former owners on 1 June 2021 at which the former owners explained that they had purchased the property in 2019 intending to invest and upgrade the building so as to operate it as a bed and breakfast/boutique hotel.

In the period in which they had owned the Property (approximately 18 months) the improvements made included the installation of a fire alarm system of the standard required to operate such a business, the upgrade of the heating and hot water system so as to provide operational resilience, redecoration, refurbishment of doors and windows, the installation of appropriate internal locks, TVs in each bedroom, the installation of facilities to provide a commercial kitchen and the conversion of two rooms to add two bathrooms. Some of the works required listed buildings consent and so could not be carried out immediately but the works were progressively undertaken in the early part of the covid lockdown.

The Appellant explained that the aesthetic of the fire detection system installed impacted on the Property. Fire exits have large lit green signs above them and there is internal floor level light guides to the fire exists.

The previous owners told the Appellant that they had maximised the opportunity for operating the business through the summer of 2020 when covid restrictions were eased though they only offered accommodation to one group of people at a time by reference to the then constraints of the property as investments were made to upgrade it and so as to comply with what they understood to be the relevant covid restrictions applying to them at the time.

They explained that their vision was to provide high quality sleeping accommodation with access to home comforts, provision of breakfast and dinner cooked from home grown ingredients to a high standard. This was facilitated as one of the previous owners was a trained chef.

The Appellant explained that as a consequence of the works undertaken the Property was suitable for use for bed and breakfast accommodation by three groups of people, in her view most probably families. As there were six luxury bedrooms located in pairs with each pair having access to a bathroom.

At the meeting the Appellant discussed the rates achieved and what services were offered by the previous owners in addition to the letting of sleeping accommodation. The Appellant explained that she was surprised at the rates that had been achieved which were comparable to those charged by another local high-end hotel in a listed building. The previous owners put this down to the setting and the quality of experience including the food provided by them.

The previous owners informed her, and she confirmed, that the company of which the previous owners were shareholders and directors was registered with a business categorisation of providing holiday accommodation and was registered for VAT.

The Appellant made an offer on the Property on 2 June 2021.

The Appellant met with the previous owners on two further occasions prior to exchange of contracts. On these visits the parties agreed what fixtures and fittings could and would remain to give the Appellant the opportunity to ensure that pre-booked guests could continue to be accommodated. Included within the purchase of the property was some furniture (wardrobe, chest of draws, sofa bed, coffee tables, mirrors) and some soft furnishings including cushions.

She also met with the staff who provided full time/daily cleaning and managed the garden.

On 19 July 2021, shortly before exchange of contracts, the Appellant captured 27 reviews posted by customers of the business operated by the previous owners. The Appellant’s view (based on her experience in the hospitality industry) was that these reviews were quite exceptional as the previous owners had achieved a google 5/5 and booking.com 10/10 rating across all reviews in the period of ownership.

On the basis of these reviews and the information otherwise obtained the Appellant was satisfied that the Property represented a suitable place from which to operate a hospitality business. However, she did not make a commercial acquisition of the business because by July 2021 she considered that the principal value of the business was in the fixtures and fittings which came with the Property. She considered that any goodwill (the asset most commonly giving value to a business) was, in any event, likely to be linked to the previous owners’ personal reputation and therefore not transferrable.

She also agreed with the previous owners that she would like to take ownership of the web domain names used to advertise the Property.

After purchasing the Property the Appellant considered perpetuating the business offered by the previous owners but concluded that she could not do so as she did not have the skills to provide in-house catering and was not confident at that time that she could commercially justify the employment of a chef/cook.

Rather, she determined to continue a business more reflective of that provided from the Cornwall property. She negotiated her mortgage on the basis that the Property would be used to provide holiday accommodation and she annexed approx. 30% of the Property to offer self-catering accommodation. The holiday accommodation is let under the name Leat House which offers its own external access, 3 bedrooms, living and dining room, kitchen and bathroom. The bedrooms and bathroom were ones which were redesigned/installed as part of the permitted development. She removed the commercial kitchen that had been installed by the previous owners and replaced it with a domestic kitchen more suitable for self-catering holiday accommodation.

Having so decided she continued to engage the gardener on a self-employed basis, but the cleaner found alternative employment. The Appellant found an outsourced cleaning company. She also decided that she did not need booking management software previously used by the owners and which enabled them to take bookings directly and interface with the booking agents.

In August 2021 the previous owners had already taken a small number of forward bookings from those wanting to stay at the Property. Having decided not to offer a bed and breakfast/dinner service the Appellant contacted those with bookings and offered accommodation only services. Three of the bookings proceeded on that basis but the others (at least two) cancelled.

The Appellant explained she applied to North Devon Council to split the property for rating purposes such that business rates were paid on Leat House and council tax on the rest of the Property. She explained that as she understood it there was no need for either for herself or the previous owners to have made such an application as business rates are not payable on guest accommodation unless more than 50% of the building is used for that purpose and/or there are more than 6 paying guests at any one time. She said that paying business rates might be commercially attractive in some situations but with regard to the Property it was assessable to council tax in band H irrespective of the business rates. Thus, she anticipated that particularly during covid when, as she understood it from her conversations with the previous owners, they were only able to have one couple or family in the Property at any one time there was no need to apply for business rates. She considered that any decision not to do so (whether passively or actively taken) did not suggest that the previous owners were not running a business. She did not explain her reasons for making the application but we note that for our purposes it is not relevant.

The holiday letting business has been successful generating over £23,000 of income in the first 12 months after purchase.

With the holiday accommodation business running alongside the sparkling wine business the Appellant did not need to establish the Property as a wedding venue but has run a small number of conferences and events including photo shoots from the Property.

After taking over the Property the Appellant established that a farmer had used the meadow for a period of at least 8 years prior to the purchase on an informal basis. The Appellant formalised the arrangement from 1 September 2022 pursuant to which the tenant paid £500 annually.

In the paragraphs below we review the documents available to us which assist us in determining the use of the Property at the EDT. We note that when reaching the conclusion communicated in the closure notice and on review HMRC excluded some documents produced by the Appellant on the basis that they related to the use to which she put the property but also justified their decision that the property was a residential property by reference to other documents which similarly related to the post EDT ownership. The Appellant was concerned that HMRC had not fairly considered all documents provided by her.

As we are exercising a full appellate jurisdiction in this appeal we must determine for ourselves, on the evidence, whether the Property is residential or non-residential on 12 August 2021. In this regard therefore we have not considered documentation which relates to the Appellant’s ownership i.e. we have not considered as relevant the Appellant’s insurance cover, the agreement put in place between the Appellant and the farmer, the Appellant’s mortgage application, reviews of the accommodation provided at the Property after EDT or her application for business rates. We have however, considered the mortgage valuation document as it reasonably represents the valuers’ assessment of the Property at the EDT.

We had access to the office copy entries and other title documents which demonstrate the size and nature of the plot and that John Isitt and Gary Nolan purchased the Property 15 November 2019.

There is evidence from the planning register that on 24 July 1975 Devon County Council granted planning permission for the change of use of the Property to from residential to residential and guest house. The permission was conditional on the carrying out of certain works including the construction of a recessed and splayed access. There was nothing before us which indicated that the relevant works were not undertaken.

By reference to a Design/Access and Heritage Statement prepared in support of a listed buildings consent application date 12 March 2020 the previous owners applied for works to be carried out to the property. Consent was required for “reopening a former internal doorway using/not modifying existing structural elements to create an ensuite bathroom and addition of a downpipe to the side of the front porch.”. The Statement describes the “current use” of the property as:

The works were described as including 1) creating an ensuite bathroom for bedroom A and 2) change of use of the small room above the front porch to a bathroom for a high status bedroom (B) at the front of the house. Planning consent was granted for the works on 13 October 2020.

We were provided with extensive documentation concerning the fire alarm system as the parties disputed whether it was a domestic or commercial system.

We had access to plans of the first two floors of the Property which were attached to the Design/Access and Heritage Statement, the fire alarm installation quote and a page of property particulars on the sale of the Property to the Appellant. The copies were not all clear, but it is apparent that following the works for which planning consent was obtained there were three pairs of rooms with en-suite or exclusive bathroom use plus three bedrooms marked as private and for the use of the previous owners with separate bathroom access. We note that Leat House, was annexed from the remainder of the house by the Appellant using what had been referred to as bedroom A in the design and access statement together with its bathroom which was accessible directly from bedroom A and from the corridor thus giving access from the associated bedroom. The kitchen that had been used by the previous owners and referred to as the commercial/second kitchen became part of the Leat House along with two reception rooms one of which, at sale, was described as the library/tv room.

On 19 July 2021 the Appellant captured information from a number of websites. These websites listed facilities provided at the Property including on-site parking, wifi, TVs, and, during covid, the ability to choose not to have the room cleaned daily, thereby at least inferring that daily cleaning was standard.

The websites also showed 27 reviews relating to stays at the Property prior to that date and in the period in which it was owned by the previous owners. The overall google rating arising from these reviewed is 5/5 and on booking.com the score was 10 (out of 10). For 2021 the Property was awarded a Traveller Review Award.

All the reviews were effusive and complementary of the experience. Some provided particularisation of the property and experience. We set out below relevant extracts from these reviews:

Included within the bundle was also publicly available information concerning the various covid restrictions in place between 26 March 2020 and the EDT. From these we record that from 26 March 2020 – 3 July 2020 no one was permitted to be away from home overnight. From 4 July 2020 hospitality businesses were permitted to reopen subject to safety guidance and the government advised against gatherings larger than 6. On 5 November 2020 the second national lockdown was brought into force. It was briefly eased over Christmas and reintroduced on 6 January 2021. The stay-at-home order ended on 29 March 2021 and occupation of self-catering accommodation in single family groups was permitted from 12 April 2021. The rule of six or two households allowed for indoor social gathering and indoor venues were permitted from 17 May 2021. Until 17 May 2021 hotels and bed and breakfast accommodation were required to close unless providing accommodation to those unable to return to their main residence, those who needed accommodation whilst moving house, attending a funeral, self-isolating or needed accommodation for work, education etc.

We were provided with email correspondence between the Appellant and the previous owners regarding the transfer of web domain names. As sortridgemanor.co.uk and sortfidgemanor.uk were due to expire on 9 September 2021 they were not transferred but the Appellant was informed that from that date she would be able to register the domains in her name. Sortridgemanor.com was, however, transferred.

As recorded in the contract for sale incorporating standard conditions of sale 5^th edition 2018 revision the Appellant contracted to purchase the property on 27 July 2021 and completed the transaction on 12 August 2021.

Prior to the EDT the previous owners had taken bookings. There was evidence of communications between the parties who had booked and the Appellant regarding the change of ownership and a willingness to honour the bookings. There is evidence that due to change of dates required in consequence of completion one family who had apparently made two previous bookings which had been cancelled (presumably because of covid restrictions) again cancelled. It is apparent from the email exchanges that the family in question had previously successfully stayed at the property as the email states “we love the place”.

The Appellant purchased the Property with the proceeds of sale from her previous property in Cornwall and a lifetime mortgage. The offer and associated valuation are dated 12 July 2021. The valuation report describes the property as over 3 floors with 10 bedrooms, 5 parking spaces and approx. 8 acres of land. No evidence of agricultural use is noted and no commercial use.

The Property was described by the estate agents who marketed it in 2021 as “A house that blends five centuries worth of architecture, set on the shore of a famous salmon river in Devon”, “Set in over seven acres within the Dartmoor National Park … a beautiful period property that comes with its own woodland and wildflower meadow.” The accommodation is detailed as a 6 bedroom, 5 bathroom property and notes “the present owners, who bought in 2019, have added two new bathrooms and generally refurbished”.

There is evidence in a review in October 2021 from “Sarah” that the Appellant replaced the kitchen in Leat House. The review references the “brand new sparkling kitchen” that they were the first to use.

We were provided with a “to whom it may concern” letter from Mr S Gliddon which states:

In correspondence with HMRC the Appellant repeatedly stated that the garden and the grounds were an integral feature of the business operated from the Property, both by the previous owners and herself, (see emails of 16 May 2022 and 10 October 2022).

We were provided with guidance issued by the Valuation Office Agency entitled “A basic guide to the rating of guest houses and bed and breakfast accommodation”. It posits the question “when is a bed and breakfast property domestic?”. The answer provided is:

The guidance then provides an explanation of the “subsidiary use test”. The test is stated to draw a distinction between the provision of limited short stay accommodation in a person’s own home and a significant business enterprise. The Valuation Office Agency considers that a significant business enterprise, requiring to be registered for business rates, is evidenced where: half or more of the property is used for guests, the property is adapted for the benefits of guests which alters the property beyond that of a private house including the installation of ensuite facilities and fire precautions (including alarms). Also considered will be whether the property is open all year round, serves evening meals or has a licence to serve alcohol.

We were provided with evidence that the previous owners were directors of a company. The registered office of the company was recorded as at the Property in the period 18 September 2019 to 14 September 2021. The nature of the business of the company was originally market research and public opinion polling and advertising services but was extended to include “other holiday and other collective accommodation” by way of the confirmation statement served on 2 September 2019.

Information captured by HMRC from publicly available sources indicates that the company is (or at the relevant time was) “a specialist co-creation and qualitative research consultancy” in the health and wellbeing sector.

The accounts of the company were also included in the bundle. These indicated that in 2019 the company was loss making. The original accounts prepared for the year to 31 December 2020 also indicated that the company was loss making but appear to have been restated as those to 31 December 2021 show not only a profit to that year but the comparator year to 2020 also show a profit. We were not provided with the restated accounts for 2020 themselves.

The parties’ submissions on the evidence followed what they each proposed as the relevant factors in determining whether the Property was used as a hotel or inn or similar establishment.

By reference to VATLP11360 the Appellant contended:

With regards to the agricultural agreement the Appellant contended that the arrangements with Mr Giddon had pre-existed her ownership though they had been formalised and there was evidence of that on which we should be entitled to found, a decision that the Property was non-residential.

HMRC’s principal submission was that viewed objectively the Property was a dwelling and had been used as a dwelling and, as such, should therefore be subject to SDLT on that basis. The position might well have been otherwise had the Appellant made a commercial acquisition of a business enterprise of which the Property was an asset.

HMRC contended that the nature of the venture pursued by the previous owners was insufficient in terms of commercial enterprise to represent use as a HISE.

They discounted entirely the evidence regarding the previous owner’s company as they said that it did not demonstrate that it had operated a business in connection with the Property. The fact that it had registered a business activity concerning holiday accommodation and was registered for VAT was not sufficient, in their view, to indicate that there was a business carried on which used the Property in a relevant regard particularly as the Property had been purchased and registered in the owner’s names and not in the name of the company which was, in any event, loss making.

HMRC accepted that the Property was marketed on a number of websites associated with the provision of holiday accommodation, including hotel and B&B accommodation. However, HMRC asserted, by reference to the limited number of reviews, that bookings had been too infrequent and sporadic through the year to represent a commercial endeavour generating insufficient turnover to properly represent commercial use of the Property.

Rather, HMRC hypothesised that the previous owner’s corporate business had suffered and that in order to generate additional income for they had opened their home to paying guests contributing to the mortgage and running costs of the Property.

Applying their list of criteria for a HISE HMRC contended:

It was submitted that there was no evidence of commercial agricultural use of the property.

We start by noting that having reviewed all the correspondence between the parties it is apparent to us that much of the focus of the Appellant’s argument and the evidence she presented to HMRC during the enquiry was on the business she decided to operate from the property rather than that operated by the previous owners. This undoubtedly led to some confusion, and we consider that the operations of the previous owners were not clearly explained to HMRC in correspondence. As indicated above what the Appellant did with the Property is not the relevant focus of enquiry in determining whether at the EDT the Property was a residential property assessable to SDLT under Table A or non-residential assessable under Table B.

We accept the Appellant’s statement and the verbal narrative provided during the hearing regarding what she observed in terms of the facilities at the Property when she visited in May – July 2021. We accept that the Appellant was honest in her recitation of the facilities she observed and she was not challenged on that evidence.

We also accept her evidence as to what she was told by the previous owners as to how they had used the Property. We do so because the narrative provided is substantially corroborated and not contradicted by the online reviews provided by those staying at the Property prior to the EDT.

From the evidence before us we find the following facts:

From the evidence we make the following findings as regards the use by the farmer:

In respect of each of the issues we have to determine we must undertake a multifactorial assessment taking account of all the relevant circumstances in this case.

Dealing firstly with the purported agricultural use. As communicated in the hearing we do not consider that there was any relevant commercial use by the previous owners of the meadow. Mr Gliddon had somewhere to cut hay and graze his sheep. The previous owners had someone to maintain their meadow which offered amenity to the Property. As contended by HMRC there was a barter of convenience.

We have found the exercise regarding HISE significantly more difficult.

It is quite plain to us that the ad hoc provision of accommodation to paying guests even with the provision of breakfast is not enough to conclude that the property in which such accommodation is provided can be considered a HISE. Such use, would, in our view, simply be ancillary to the use of the property as a dwelling. An HISE requires there to be a commercial enterprise rather than a “hobby” and the provision of services with the accommodation which would not normally be provided with holiday accommodation i.e. there must be more than just accommodation provided.

The facts we have found in the present case are highly marginal.

On the one hand (and indicating that the use was ancillary) we have the following factors:

On the other hand:

We do not consider that HMRC’s hypothesis that the previous owners were letting out their home to make ends meet is a reasonable hypothesis. We reflect that there is no evidence of financial pressure on them and sums appear to have been paid to make adaptations and relevant reports and consents. Whilst the accounts for a company of which they were directors originally showed a loss for 2020 the apparently restated accounts did not and we have no evidence of any other sources of income. But even if there was a financial difficulty, we consider that it was most unlikely, as the country was gripped by the fear of transmission of the covid virus and in light of a direction from the government to limit socialising, that the go to answer would have been to open one’s home to paying guests. Admitting strangers into one’s home, feeding them and providing them with the service and welcome offered was, in our view, intended as the start of a commercial enterprise.

The critical question is: was the scale of the activities associated with the provision of accommodation to paying guests enough to have reached the threshold necessary to represent commercial use with sufficient permanence and continuity to qualify as having used the property as an HISE and not simply as a dwelling?

On balance, and by the finest of margins, we have decided that it was. We do so because we think it reasonable to consider the activity in the broader context of a country in the grip of a global pandemic. In those circumstances we consider that the previous owners were operating to the maximum capacity possible in that period with a concerned and coherent effort to attract customers. Paying guests were accommodated with frequency given the number of rooms available and subject to covid restrictions. As we have found paying guests were not simply provided with accommodation, they were provided with fully serviced accommodation, high quality breakfasts and wider amenity which cannot be regarded as passive use of the property.

In reaching our conclusion we have given particular thought to the absence of registration for business rates which are required unless the business use is “subsidiary” to private use. Had subsidiarity not been defined for business rates purposes we may well have concluded that the absence of business rates registration tipped the balance against the Appellant. However, we do not consider that there is a requirement for a HISE to use more than 50% of a Property in order to take it outside the definition of a residential property. This is so despite the caution we note at paragraph 42 above for the reasons stated in that paragraph.

We note that we consider that the facts of this case are likely to be almost unique.

For the reasons stated we conclude:

Accordingly, we allow the appeal.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.