Sean Fitzgerald & Anor v The Commissioners for HMRC

This appeal is about whether or not Mr and Mrs Fitzgerald were entitled to claim multiple dwellings relief (“MDR”) on the purchase of a property (the “Property”) in West Turville.

The appeal is against closure notices issued by HMRC concluding that MDR was not available and assessing additional tax due of £19,450.

For the reasons set out below we dismiss the appeal.

On 9 October 2020, Mr and Mrs Fitzgerald purchased the Property for a consideration of £889,000.00.

On 12 October 2020 Mr and Mrs Fitzgerald submitted a Stamp Duty Land Tax (“SDLT”) return in respect of the purchase of the Property.

On 11 March 2021, the Fitzgeralds’ Agent made an amendment to the SDLT return asserting that “MDR” was due on the grounds that the Annexe was a separate dwelling to the main house. A refund of overpaid SDLT of £19,450 was requested

On 22 November 2021 HMRC wrote to the Fitzgeralds opening an enquiry into the amended SDLT return.

After exchanges of correspondence and information, on 12 May 2022 HMRC closed their enquiry and issued closure notices on the basis that that MDR was not due. That closure notice forms the basis of the present appeal.

The Property consists of a five-bedroom detached main dwelling house with an annexe (“the Annexe”), garage, and carport.

The basis for claiming MDR is the suggestion that the Annexe was a separate dwelling to the main house.

We were provided with sales particulars, numerous photographs and a floorplan of the Property. Mr Fitzgerald also gave evidence and was cross-examined. From this evidence we make the following findings as to the physical layout of the main house and Annexe.

Planning permission for the construction of the Annexe was granted subject to a condition (which we shall refer to as the “Planning Condition”) that:

“The development hereby permitted shall not be used for any purposes other than as ancillary to the residential accommodation presently on the site as a single dwelling unit and not as a separate unit of residential accommodation in its own right”

The reason given for the Planning Condition in the grant of permission was that:

“The proposed annexe has no independent curtilage and is therefore not acceptable as a separate dwelling unit and to comply with policy GP10 of Aylesbury Vale District Local Plan.”

The planning case officer report that led to the grant of planning permission provides more detail as to the reasoning behind the Planning Condition:

“Policy GP10 of the AVDLP states that residential annexes to dwellings in built up areas either as extensions or detached buildings will be permitted provided that they meet standards that apply to independent dwellings. In this case, the proposed annexe due to its size is considered as an extension as it is externally and internally connected to the house. The issue of an independent dwelling would not arise. However if the linkage to the garage is the only link to the main dwelling, the annexe could form an independent unit should the side door to the attached garage be blocked up.

...

However the proposal could not be considered as an infill plot due to the positioning slightly to the rear and it would have no independent amenities. The proposed annexe would not meet the necessary standards for new dwellings given no separate curtilage and privacy between the annexe and the main dwelling.

...

To ensure that the annex remains ancillary to the main property, the standard condition should be attached to any permission granted, in accordance with policy GPl0 of the AVDLP.”

Expert evidence was provided on behalf of the Fitzgeralds by Stuart Thomas of Berrys. Mr Thomas has extensive knowledge and experience of the planning system.

In Mr Thomas’ view, the Planning Condition is unenforceable. In his view the substance of the planning approval is for something that physically constituted a separate dwelling.

Mr Thomas told us that the council would have a discretion whether or not to bring enforcement proceedings if Mr and Mrs Fitzgerald sought to use the Annexe in breach of the Planning Condition. Mr Thomas stated that, if he were asked by the council to provide advice on the enforceability of the Planning Condition, he would advise that it could not be reasonably enforced and that no further action could be taken.

Mr Thomas was clear that he did not purport to be a tax expert and was only providing his view on the planning position. Mr Thomas also accepted that he was providing his view and that other planning experts may take a different view.

Mr Thomas told us that there is a process under s. 73 of the Town and Country Planning Act 1990 under which an application could be made to discharge or vary the Planning Condition. No such application has been made.

The law on SDLT is primarily set out in Part 4 the Finance Act 2003 (“FA 2003”). It is unnecessary to set out most of the legislative material at length, the key points are:

As set out in Paragraph 2(2)(a) Sch 6B FA 2003, a transaction will qualify for MDR where its subject matter consists of an interest in at least two dwellings.

The definition of a dwelling for these purposes is set out in paragraph 7 of Sch 6B FA 2003, which provides (so far as is relevant):

“7.

What counts as a dwelling

(1)

This paragraph sets out rules for determining what counts as a dwelling for the purposes of this Schedule.

(2)

A building or part of a building counts as a dwelling if–

(a)

it is used or suitable for use as a single dwelling, or

(b)

it is in the process of being constructed or adapted for such use.

(3)

Land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds (including any building or structure on such land) is taken to be part of that dwelling.

(4)

Land that subsists, or is to subsist, for the benefit of a dwelling is taken to be part of that dwelling.”

The meaning of “suitable for use as a single dwelling” was considered by the Upper Tribunal (Judge Thomas Scott and Judge Greenbank) in Fiander and Brower v HMRC [2021] UKUT 156 (“Fiander”) which observed, at [47] – [48], that:

“47.

The HMRC internal manuals on SDLT contain various statements relating to the meaning of “dwelling” and “suitable for use as a single dwelling”, but these merely record HMRC's views and do not inform the proper construction of the statute.

48.

We must therefore interpret the phrase giving the language used its normal meaning and taking into account its context. Adopting that approach, we make the following observations as to the meaning of "suitable for use as a single dwelling":

(1)

The word “suitable” implies that the property must be appropriate or fit for use as a single dwelling. It is not enough if it is capable of being made appropriate or fit for such use by adaptations or alterations. That conclusion follows in our view from the natural meaning of the word “suitable”, but also finds contextual support in two respects. First, paragraph 7(2)(b) provides that a dwelling is also a single dwelling if “it is in the process of being constructed or adapted” for use as single dwelling. So, the draftsman has contemplated a situation where a property requires change, and has extended the definition (only) to a situation where the process of such construction or adaption has already begun. This strongly implies that a property is not suitable for use within paragraph 7(2)(a) if it merely has the capacity or potential with adaptations to achieve that status. Second, SDLT being a tax on chargeable transactions, the status of a property must be ascertained at the effective date of the transaction, defined in most cases (by section 119 FA 2003) as completion. So, the question of whether the property is suitable for use as a single dwelling falls to be determined by the physical attributes of the property as they exist at the effective date, not as they might or could be. A caveat to the preceding analysis is that a property may be in a state of disrepair and nevertheless be suitable for use as either a dwelling or a single dwelling if it requires some repair or renovation; that is a question of degree for assessment by the FTT.

(2)

The word “dwelling” describes a place suitable for residential accommodation which can provide the occupant with facilities for basic domestic living needs. Those basic needs include the need to sleep and to attend to personal and hygiene needs. The question of the extent to which they necessarily include the need to prepare food should be dealt with in an appeal where that issue is material.

(3)

The word “single” emphasises that the dwelling must comprise a separate self-contained living unit.

(4)

The test is objective. The motives or intentions of particular buyers or occupants of the property are not relevant.

(5)

Suitability for use as a single dwelling is to be assessed by reference to suitability for occupants generally. It is not sufficient if the property would satisfy the test only for a particular type of occupant such as a relative or squatter.

(6)

The test is not “one size fits all”: a development of flats in a city centre may raise different issues to an annex of a country property. What matters is that the occupant’s basic living needs must be capable of being satisfied with a degree of privacy, self-sufficiency and security consistent with the concept of a single dwelling. How that is achieved in terms of bricks and mortar may vary.

(7)

The question of whether or not a property satisfies the above criteria is a multi-factorial assessment, which should take into account all the facts and circumstances. Relevant facts and circumstances will obviously include the physical attributes of and access to the property, but there is no exhaustive list which can be reliably laid out of relevant factors. Ultimately, the assessment must be made by the FTT as the fact-finding tribunal, applying the principles set out above".

Section 83 FA 2003 provides HMRC with powers as to assessments, penalty determinations etc, with further provisions in this respect being contained in Schedule 10.

Paragraph 12 of Schedule 10 FA 2003 provides, inter alia, for the time limit for opening an enquiry. Paragraph 23 provides for the completion of enquiry by the issue of a closure notice.

The sole issue in dispute between the parties is whether or not the Annexe was “used or suitable for use as a single dwelling”, within the meaning set out above. The burden of proof in relation to that issue falls on the Fitzgeralds.

The existence of the Planning Condition is of some relevance to this question. To assist the Tribunal we asked the parties to provide submissions on the case of HMRC v Daniel Ridgway [2024] UKUT 00036 (TCC) which considered the effect of planning restrictions on the status of a property. Both Ms Wise (for the Fitzgeralds) and Ms Stuart (for HMRC) provided carefully-considered written submissions and we are very grateful for their assistance.

The parties also provided further submissions on the FTT decision of James Winfield v HMRC [2024] UKFTT 734 (TC). However, that decision is in essence an application of the multi-factorial test set out in Fiander and need not be explored in great depth.

Ms Wise’s submissions on behalf of the Fitzgeralds can be summarised as saying that, applying the Fiander test, the Annexe is suitable for use as a separate dwelling because:

In relation to the Planning Condition, and the relevance of Ridgway, Ms Wise submitted:

The test we must apply is the multi-factorial approach put forward in Fiander. We must therefore take into account all the facts and circumstances in order to determine whether the Annexe was “suitable for use as a single dwelling” for the purposes of MDR.

Before applying that test, we first consider the significance of the Ridgway decision and how to treat the Planning Condition

In Ridgway the taxpayer bought a property which comprised two separate registered titles. The first was a semi-detached house and gardens, the second was adjoining land with a building, called ‘the Old Summer House’, which had originally been used as a garage and later as an artist's studio. The taxpayer’s solicitor advised him that, if the Old Summer House were in commercial use at the time of completion, he would be able to apply the lower rate of SDLT for properties with mixed use.

Two weeks before completion, the taxpayer arranged for the vendors to grant a six-month commercial lease to a photography business to enable him to claim mixed use relief. The lease contained a covenant that the building should not be used for residential properties.

However, the Old Summer House was also subject to a planning restriction prohibiting non-residential use.

The taxpayer's SDLT return was made on the basis that the overall property was mixed use, but, following an enquiry, HMRC issued a closure notice charging SDLT at the residential rate. This was on the basis that the Old Summer House was residential property because it was 'suitable for use as a dwelling'. The taxpayer appealed to the First-tier Tribunal (“FTT”) and was successful in part. Both HMRC and the taxpayer appealed to the Upper Tribunal.

The FTT considered that the lease meant that the Old Summer House was not suitable for use as a dwelling.

The Upper Tribunal held:

(at [47]) that:

“In our view, the existence of restrictions on use, whether by way of freehold or leasehold covenants, planning law or other legal restrictions, must form part of the multi-factorial analysis as to whether a building is suitable for use as a dwelling. Ultimately, it is a matter for the FTT to decide what weight to place on the relevant factors in determining the issue.”

From these points we draw the conclusion that we are obliged to take the Planning Condition into account in applying the multi factorial test, but that we must take account of all the circumstances in determining how much weight to give to it.

Ms Wise suggested that the Planning Condition here was (in the opinion of Mr Thomas) unenforceable. That point is (to an extent) dealt with in Ridgway (at [65]) as follows:

“The likelihood of a planning authority taking enforcement action or granting retrospective permission, would not be a relevant, objective factor. Similarly, the likelihood of a landlord seeking to enforce a covenant in a lease would not be relevant. It is the existence of the restrictions which are relevant factors, not the likelihood of enforcement.”

We appreciate that Ms Wise argues that the condition should be considered entirely unenforceable, but as we explain below, we do not accept that view.

In Ridgway itself, there was a perceived inconsistency between the legal restrictions. The Upper Tribunal decided that the physical attributes would therefore be considered to be dominant.

Ms Wise argues that in the present case the physical attributes should also be considered dominant as the planning condition “is inconsistent with the physical attributes of the development that was granted permission and the subsequent use of the Annex as a single dwelling”.

This is a valiant effort to create an inconsistency of the sort found in Ridgway (where there were two conflicting legal restrictions - the lease restrictions and the planning condition). However, this is entirely distinguishable from the present case, where there is only a single legal restriction - the Planning Condition.

In any event, we do not consider that the Upper Tribunal was seeking to put forward a general proposition that competing conditions can simply be treated as cancelling one another out. The Upper Tribunal was simply demonstrating how different factors might interact in a given case.

We also note that in Ridgway the Upper Tribunal noted (at [71]):

“There may be cases where legal restrictions carry particular weight in the overall analysis and lead to a conclusion that a building is not suitable for use as a dwelling, but this is not such a case.”

As we have set out below, we consider that the present case is one where the legal restrictions are of considerable significance.

The Annexe here is described in the planning permission as a “granny annexe”. This would normally connote an annexe built to accommodate a dependent relative.

In such an annexe there would be expected to be a degree of self-sufficiency and privacy between the annexe and the main accommodation but there may also be ready access between the two areas and an expectation of shared existence and reduced privacy. The degree of privacy between the two areas may be lesser than might be expected by a third-party tenant.

The Annexe in the present case entirely conforms to that characterisation. It is physically self-contained (in terms of having its own kitchen, bedroom, bathroom and utilities) but has limited privacy from the main house. Any occupant of the main house who was sitting in the garden could see directly into the living room and bedroom of the Annexe (unless curtains or blinds were drawn – depriving the Annexe of natural light). The simple internal (albeit lockable) door between the utility room of the main house and the Annexe also limits privacy.

As such, the Annexe is clearly suitable for occupation by relatives of the occupants of the main house. However, we would question whether the Annexe could realistically be suitable for occupation by a third-party tenant.

The Planning Condition provides that the Annexe “shall not be used for any purposes other than as ancillary to the residential accommodation presently on the site as a single dwelling unit and not as a separate unit of residential accommodation in its own right”. There is no room for doubt that this was intended to prohibit occupation by a third-party tenant.

From the reasons given by the council for the condition, it is clear that the council considered that the physical characteristics of the Annexe were such that it included the basic elements of an independent dwelling and so put in place the limitation to make it clear that such use was not permitted.

We do not consider that it is appropriate for this Tribunal to effectively disregard the legal limitations placed on the use of the Annexe by the competent authority. The Annexe only came into being on the basis that it would not be used as a separate dwelling and the Tribunal ought to give effect to that position.

We do not consider that Mr Thomas’ views on the enforceability of the condition alter the position. He freely accepts that the council may take a different view on the enforceability of the question and it does not appear that the view of the council has been sought.

As a matter of practical reality, the condition is in place and has not been removed. It would have been open to a previous owner of the Property to apply to have the condition removed but they did not do so.

As a result, if the Annexe were occupied by a third-party tenant, there would on the face of it be a breach of planning law.

In those circumstances we consider that the Planning Condition must be given particular weight in applying the multi-factorial test. However, weight must also be given to the physical factors which limit the suitability of the Annexe for occupants other than those closely linked to the occupier of the main house.

Applying that test, and having considered all the circumstances, our view is the Annexe is not suitable for use as a single dwelling within the meaning of the statute. Accordingly, the appeal must be dismissed.

For the reasons set out above, we dismiss the appeal.

The closure notices were correctly issued and MDR was not available. The additional tax of £19,450 is due.

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.