Andrew Charles Ferguson & Anor v The Commissioners for HMRC

This is an appeal against HMRC’s conclusion that the Stamp Duty Land Tax (“SDLT”) return in relation to a property known as Marden Grange (“the Property”) purchased by the Appellants (“the Fergusons”) ought to have been made on the basis that the residential rates of SDLT applied.

The focus of the appeal is on the question of whether a paddock on the property forms part of the grounds of that property.

For the reasons set out below, we find that the paddock was part of the grounds and dismiss the appeal.

We were provided with a hearing bundle of 320 pages, along with some separate water trough images. Miss Philippa Radford-Howes (“PRH”) gave evidence and was cross examined. From that evidence we find the following facts.

The Fergusons purchased the Property on 5 October 2022 for £4,250,000 on its disposal by Mr Timothy Lloyd-Hughes and Mrs Julia Lloyd-Hughes (“the LHs”). The sale was completed by a conveyance of the Property by the LHs to the Fergusons.

The Property was not marketed for sale. The sale was “off market”. No sales particulars were produced in respect of the transaction. Historic sales particulars referred to the property as including stabling and paddock.

The land conveyed at completion was registered as a separate title and comprised approximately 4.3 acres including the eight-bedroom main house, gardens and grounds (about 3.9 acres), outbuildings, swimming pool, tennis court, and a paddock (“the Paddock”) of approximately 0.4 acres. Other areas of land owned by the LHs (which we shall refer to as the Livery Stables and Sand School) remained on other titles and were not included in the purchase.

The Paddock is broadly rectangular in shape, tapering at one end. Three sides of the paddock are surrounded by other parts of the Property, and one short side (the shortest tapered side) forming part of the perimeter of the property adjacent to the Livery Stables.

The Paddock is accessed from a gate opening into the property along one of the long edges. Occupants of the Livery Stables must cross part of the Property in order to access the Paddock. PRH had initially said in her witness statement that “The Paddock is fully separated from the garden of Marden Grange by a stock proof fence. It is not accessible from Marden Grange.” On questioning by the Tribunal, PRH clarified that access was in fact over the Ferguson’s property. PRH clarified that she had meant that there was no access to the Paddock from the house end of the grounds but access was from the stable end.

The Paddock cannot be seen from the house itself. The Paddock is separated from the garden and tennis court area of the property by a post and rail fence. We were supplied with a number of photographs of the property. From those photographs it was clear to us that the post and rail fence is a fairly simple construction that keeps horses in without providing a significant visual obstruction, such that the Paddock appears visually to be part of the contiguous land surrounding the Property (along with the tennis court and gardens). By contrast, there are a large number of tall trees between the Paddock and Livery Stables.

The Livery Stables formed part of the land adjoining the Property that was retained by the LHs. This land was let to PRH and her business partner Mr John Mark Carpenter (“JMC).

JMC and PRH carried on a livery yard business, trading as Marden Grange Livery Stables. The Livery Stables is run on a commercial basis, housing up to 12 horses.

The Livery Stables are leased by PRH and JC from the LHs at a rent of around £13,000 per annum.

The Paddock has been used by PRH and JMC, under agreements with successive owners, since 1989.

PRH told us that there is a need for around 1.5 acres per horse as a general rule.

As well as the Paddock, PRH and JMC have a licence to use other land owned by the LHs, there is the Sand School (a rectangular area adjoining both the Property and the Livery Stables) and a grazing field (the Grazing Field) of 6.4 acres (in comparison to the 0.4 acres of the Paddock). The Grazing Field is further away from the main stables than the Paddock.

All fields are used by PRH and JMC every day. The Paddock is in regular use by the Livery Stables for the horses’ daily exercise, feeding and wellbeing. The Paddock is used by up to three horses at any one time.

PRH and JMC carry out general upkeep of the Paddock, repairing fencing and mowing if needed. PRH and JMC have water troughs on the Paddock, with water piped from the Livery Stables to refill the troughs. PRH and JMC carry out periodic weed spraying.

The original grazing licence we were provided with was dated 10 November 2015 between the LHs and PRH and JMC. It granted the right “to school horses in the sand school and keep horses on the remainder of the Premises for grazing purposes only,” together with rights to seed, mow, remove the grass, and use the green‑coloured track for vehicular and pedestrian access; the licence fee was £480 for the period 10 November 2015 to 10 October 2016

A 2017 grazing licence granted substantively identical rights over the Sand School, a paddock (but not The Paddock) and the Grazing Fields, for the period 1 December 2017 to 20 March 2020, for a licence fee of £480 per annum (pro‑rated in the final year).

The licence is expressly stated to be personal to the licensees (JMC and PRH) and is not capable of being assigned or otherwise dealt with.

It appears to have come to light in the course of conveyancing for the Property that the 2017 grazing licence did not in fact include the Paddock. On 4 October 2022 (a day before the completion of the sale of the Property), the LHs, PRH and JMC executed a variation agreement which amended the 2017 licence to include the Paddock. The preamble to the variation agreement states that PRH and JMC have used the Paddock since the date of the 2017 agreement.

The sale was made in pursuance of a contract dated 19 July 2022.

The contract provided that the property would be sold with vacant possession but expressly “subject to the Grazing Licence”. We comment further on the legal effect of this provision later in this decision. The Grazing Licence was defined as the 2017 licence mentioned above

Clause 14 of the contract is entitled “SDLT Enquiries”. That clause provides that the Sellers (the LHs) shall use reasonable endeavours to obtain a statement from the Tenant of the Grazing Licence (i.e. PRH and JMC) “detailing the occasional use of the paddock shown hatched black and tinted pink on the Plan”.

Clause 14 also provides that the Sellers will produce a revised grazing licence including the Paddock.

Mr and Mrs Ferguson made an SDLT return on 6 October 2022. In that return, they self-assessed that the Property was “mixed-use” and that £202,000 of SDLT was chargeable in respect of the transaction. They paid this sum and made the return in time.

HMRC notified Mr and Mrs Ferguson of their intention to open an enquiry into the SDLT return in time on 18 October 2022.

Following correspondence, HMRC issued a closure notice on 24 November 2023. HMRC concluded that the main subject-matter of the transaction is exclusively “residential property” for the purposes of SDLT. HMRC made consequential amendments to the SDLT return increasing the SDLT due by £219,250.

That closure notice was appealed and it is that appeal that is before this Tribunal.

SDLT is charged on land transactions (Finance Act 2003 (“FA 2003”) s 42). The amount of tax is determined by section 55 by reference to whether “the relevant land” (the land an interest in which is the main subject‑matter of the transaction: s 55(3)) consists entirely of residential property (Table A) or consists of or includes land that is not residential property (Table B).

Section 116(1) FA 2003 provides that “residential property” means:

“Non‑residential property” means any property that is not residential property.

It was common ground between the parties that the only issue to be determined by the Tribunal was whether or not the Paddock formed a part of the grounds of the Property.

The question involves the application of a multi-factorial test.

In HMRC v Suterwalla [2024] UKUT 00188 (TCC) the Upper Tribunal (at [18]) approved of a summary of the relevant factors, derived from the cases included by Judge McKeever in 39 Fitzjohns Avenue Ltd v HMRC [2024] UKFTT 28 (TC) at [37]:

“(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.”

The parties have cited an abundance of decisions illustrating instances of the application of the multi factorial test. We have considered the various propositions cited by the parties but have not reproduced them at length.

We do however note the views expressed by Judge Popplewell in Jessica Harjono and Anor v HMRC [2024] UKFTT 228 (TC) at [82-83]:

“82.

In the context of this appeal, we accept that the grazing agreement was on arm’s length terms, and the rent was a market rent.

83.

But the use of the paddock for grazing a pony is the paradigm use of a paddock. And this is the case whether that use is by a third party under a grazing agreement negotiated on arm’s length terms and carrying a market “rent”, or whether it is by the owners themselves”

In summary, the Appellants submit that the paddock included in the title did not form part of the garden or grounds of the dwelling. They argue that the paddock was functionally separate from the house and integral to the livery business operated by JMC and PRH.

Mr Randall, for the Fergusons, summarised the way in which he submitted the relevant factors ought to be considered as follows:

HMRC submits that the property was wholly residential and that the paddock formed part of the grounds of the dwelling within section 116(1)(b) FA 2003.

Mr Young, for HMRC, argued that the paddock was contiguous with the gardens, included in the same registered title, and adjacent to the tennis court, making it part of the natural boundary of the estate.

Mr Young stressed that the paddock could only be accessed across the residential grounds and was visually and physically integrated with the property.

HMRC contended that grazing horses is the normal use of a paddock and consistent with residential character, particularly for a country house of this scale.

Mr Young described the licence as a personal, terminable arrangement for a nominal fee, which did not confer exclusive possession and was not binding on the purchasers.

In HMRC’s view, the licence was a “bargain of convenience” to maintain the land rather than a separate commercial exploitation.

Overall, HMRC submits that factors such as contiguity, common ownership, and integration outweigh the limited grazing arrangement and that, on a realistic appraisal, the paddock was part of the residential grounds at completion.

The central question is the status of the Paddock at the effective date of the transaction. The Appellants must demonstrate, on the balance of probabilities, that the transaction included land that was not residential property.

We place significant weight on accessibility and functional relationship at completion. The Paddock sits within the borders of the Property, albeit that one short edge also borders the Livery Stables.

The Paddock was not in fact accessible from the Livery Stables and could only be reached across the residential grounds. That practical reality strongly connects the paddock to the dwelling and its grounds. Although fences delineate areas, the Paddock sits within the wider envelope of the gardens and tennis court and is contiguous with those amenity areas. The absence of independent access from the Livery Stables is inconsistent with the paddock having its own separate, self‑standing function divorced from the house.

We also place weight on the legal position at completion. Whatever arrangements existed between the LHs and JMC and PRH, as a matter of law the licence was not binding on the purchasers. There was no transfer of an enforceable right against the LHs. The property was sold with vacant possession and the Fergusons were not obliged to permit continued occupation of the paddock by the licensees. In a garden‑and‑grounds assessment, third‑party rights may dilute amenity but do not, in and of themselves, change the character of land where those rights do not bind the new owner and where access is through the residential grounds.

Actual use can be informative. Here, Mr Randall for the Appellants rested much on historic use linked to the Livery Stables business. However, such usage, even though long-standing and on a commercial basis, has not, in our view, given the Paddock a separate function or identity. We consider that the usage is outweighed by the combination of physical contiguity, residential‑only access, the absence of any binding right in favour of the livery business against the Fergusons, and the property’s overall residential character and scale. This is a substantial dwelling with extensive gardens, pool and tennis court; a modest adjoining paddock, fenced and reached across those grounds, is well within what ordinary language would consider the “grounds” of such a house.

We also recognise that some “intrusion” by third‑party use may be tolerated before land ceases to be grounds. On the facts as we have found them, any past or contemplated grazing by a neighbour under an arrangement that does not bind a successor in title does not negate the Paddock’s character as part of the grounds.

Balancing all relevant factors, it is clear to us that the Paddock is part of the grounds belonging to the Property. It is a part of the contiguous area of land surrounding the main dwelling house, separated from the garden and tennis court area by a simple post and rail fence. The Paddock is intended to be used, and is used, for grazing horses. This is the paradigm use of a paddock. The existence of a grazing licence and of extended use by a third party for that very purpose does not render the Paddock any less a part of the grounds of the Property.

We also echo the slightly exasperated tone of the FTT in Harjono at the succession of cases which seek to argue that renting out a paddock for use as a paddock somehow alters its identity, the FTT said (at [80]):

“80.

“Commercial” is a weasel word. In mixed-use situations it is increasingly being asserted that any letting of part of a property for a market rent is commercial and, as if by magic, the land leaves the residential pot and turns up in the mixed-use pot. As the cases show, this simplistic analysis is being rejected by the courts.

81.

When looking at the use to which land is put, simply inserting some form of “commercial” agreement between a landowner and a third party does not, of itself, generate a use which is of significant weight in the multifactorial evaluation. One needs to look through that agreement and consider the end use of the land as well.”

Each case is to be determined on its own unique facts. In the present case we have considered all the facts, including the extended use of the paddock under a grazing licence. However, where the sole basis for a claim to mixed use treatment is the existence of a grazing licence over a paddock that would otherwise be unequivocally a part of the grounds of a residence, a taxpayer ought to consider very carefully whether a claim to mixed use treatment has any merit. A grazing licence will not generally alter the relationship between a dwelling and paddock such that the paddock will cease to be a part of the grounds of the dwelling.

For the reasons set out above, we find that, at the effective date of the transaction, the relevant land consisted entirely of residential property for the purposes of section 116 FA 2003. The correct rates are those in Table A of section 55 FA 2003. HMRC’s closure notice amendment stands.

The appeal is dismissed

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.