The Commissioners for HMRC v Taher Suterwalla & Anor

This appeal concerns Stamp Duty Land Tax (‘SDLT’). On 11 December 2020, the Respondents (‘Mr and Mrs Suterwalla’) purchased a property outside Henley on Thames. The property was a seven bedroom family house with indoor swimming pool, gardens which included a pavilion and a tennis court, and a paddock (together, ‘the Property’). Mr and Mrs Suterwalla filed an SDLT return on 14 December 2020 which declared that the property they had acquired was a residential and non-residential mixed-use property. The consequence of that declaration was that SDLT was chargeable on the transaction at a lower rate than if the Property had been purely residential. The Appellants (‘HMRC’) opened an enquiry into the return on 19 August 2021 and, after an exchange of correspondence, issued a closure notice to Mr and Mrs Suterwalla under paragraph 23 of Schedule 10 to the Finance Act 2003 (‘FA 2003’) on 8 November 2021. The effect of the closure notice was to increase the SDLT due in respect of the acquisition of the Property from £169,500 to £330,750 on the ground that the Property was not mixed-use but entirely residential.

After further correspondence and a review, which upheld HMRC’s decision, Mr and Mrs Suterwalla appealed to the First-tier Tribunal (Tax Chamber) (‘FTT’) on 8 February 2022. The only issue at the hearing of the appeal in May 2023 was whether the Property acquired by Mr and Mrs Suterwalla constituted land consisting entirely of residential property or whether it also included land that was non-residential. Mr and Mrs Suterwalla contended that the paddock, in respect of which they had granted a grazing lease on the day of completion of the purchase, was a non-residential part of the Property. In a decision released on 23 May 2023 with neutral citation [2023] UKFTT 450 (TC) (‘the Decision’), the FTT allowed Mr and Mrs Suterwalla’s appeal.

With the permission of the FTT, HMRC now appeal to the Upper Tribunal (‘UT’) on three grounds, namely that the FTT erred:

At the hearing before us, HMRC were represented by Ms Marika Lemos with Mr Colm Kelly. They had not appeared before the FTT. As he had done in the FTT below, Mr Patrick Cannon acted for Mr and Mrs Suterwalla. We are grateful to counsel for their submissions both written and oral on behalf of the parties. We were very much assisted by the submissions but, although we considered all of them, we have not found it necessary, for reasons which will become apparent, to refer to each and every argument advanced, all of the authorities cited or all of the evidence before us in reaching our decision.

We set out the FTT’s findings of fact at [19] below and the reasons given for its decision at [20] – [26] before discussing whether they entitled the FTT to find that that the paddock was not part of the grounds of the house at [29] to [44] below but, before we do so, it is convenient to set out the relevant legislation and some case law on the meaning of grounds for the purposes of SDLT.

All references to legislation in this decision are to provisions of the Finance Act 2003.

Section 42 provides that SDLT is charged on land transactions. A land transaction is defined by section 43 to be “any acquisition of a chargeable interest”. Section 48 defines the chargeable interest as including an estate, interest, right or power in or over land.

Section 49 provides that a land transaction is a chargeable transaction if it is not a transaction that is exempt from charge. There is no exemption that might be applicable in this case.

Section 55 sets out the amount of tax chargeable on the relevant consideration given for a chargeable transaction, ie the chargeable consideration for the transaction. There are differing rates for residential properties and for properties that are wholly or partly non-residential. The section contains two tables and Table A applies “if the relevant land consists entirely of residential property”. Table B applies “if the relevant land consists of or includes land that is not residential property.” Section 55(3)(a) defines the relevant land as “the land an interest in which is the main subject-matter of the transaction”.

Section 43(6) provides that:

Section 116(1) provides as follows:

In the Decision, the FTT cited and relied on a number of decisions of other tribunals and courts on the issue of mixed residential and non-residential properties. It is not necessary to reproduce all of the authorities mentioned in the Decision, but it is useful to set out here some of the passages cited and relied on by the FTT.

The UT in Hyman & Ors v HMRC [2021] UKUT 68 (TCC) (‘Hyman UT’) observed at [33]:

The UT held at [38] that:

At [49], the UT provided the following guidance:

The Court of Appeal endorsed the views of the UT in Hyman and Goodfellow v HMRC [2022] EWCA Civ 185 (‘Hyman CA’) at [33].

The UT in The How Development 1 Ltd v HMRC [2023] UKUT 84 (TCC) (‘How Development’) held, in [46] – [47] that accessibility is a factor to be taken into account by the FTT in its evaluative exercise, but difficulty of access or inability to access an area does not mean that the land cannot be part of the grounds of the dwelling. The UT said, at [116], that they had adopted the approach suggested in Hyman UT and endorsed by the Court of Appeal in Hyman CA of weighing up all material factors, based on the FTT’s relevant findings of fact in that case. Having set out the different factors, the UT set out some guidance in [123]:

As will be seen below, the FTT adopted the nine ‘pointers’ listed by Judge Baldwin in James Faiers v HMRC [2023] UKFTT 00297 (TC) (‘Faiers’) to be considered when considering whether land forms part of the grounds of a building. Although Judge Baldwin’s formulation is helpful, we prefer the expanded summary of the relevant factors, derived from the cases including Hyman, Faiers and How Development, by Judge McKeever in 39 Fitzjohns Avenue Ltd v HMRC [2024] UKFTT 28 (TC) at [37]:

The FTT recorded Mr Suterwalla’s evidence at [34] – [38] of the Decision. Although it does not expressly say so in the Decision, which is regrettable, Mr Suterwalla’s evidence does not appear to have been challenged by HMRC and the FTT seems to have accepted it. The FTT made findings of fact in relation to the purchase of the Property and the grazing lease at [39], [48] and [55]. From those paragraphs, the material facts may be summarised as follows:

The FTT set out its reasons for allowing Mr and Mrs Suterwalla’s appeal at [57] – [60]. The FTT’s primary reason for allowing the appeal is in [57] of the Decision:

The FTT’s reasoning in [57] is very compressed. The first sentence is a rejection of HMRC’s argument, recorded at [52], that the FTT should apply the approach taken by the UT in Ladson Preston at [62] and ignore the grazing lease as it was not in place at the time of completion. HMRC submitted that Mr and Mrs Suterwalla could not grant the grazing lease until after completion and therefore, at completion, the Property was wholly residential. We discuss Ladson Preston at [47] - [49] below.

The second sentence of [57] of the Decision is an acceptance of Mr Cannon’s submission in [44] that the FTT should not follow the decision of another FTT in Brandbros Ltd v HMRC [2021] UKFTT 157 (TC) (‘Brandbros’). In Brandbros, which pre-dated Ladson Preston, the FTT decided that the grant of a commercial lease over a garage on the same date as completion of the purchase was a separate transaction and did not affect the treatment of the prior purchase of the dwelling earlier on the same day even though section 119 refers to the date of completion and not the time of completion as the effective date of a land transaction for SDLT purposes. Mr Cannon had submitted that the Property should be regarded as mixed-use because section 119 refers to the effective date not the time and the Property became subject to the grazing lease on the date of completion (11 December 2020) albeit after the completion had occurred. In [45], the FTT records that Mr Cannon contended that HMRC were relying on a ‘scintilla temporis’ between the completion of the purchase of the Property and the grant of the grazing lease. Mr Cannon relied on statements by Lord Oliver in Abbey National v Cann [1990] 1 All ER 1085 and Lord Hoffman in Ingram v HMRC [2001] 1 AC 303 to the effect that ‘scintilla temporis’ is a legal artifice and not based on reality.

In [57], the FTT gave no reasons for disagreeing with decision of the FTT in Brandbros, a case in which Mr Cannon had appeared for the taxpayer and deployed the same argument based on scintilla temporis, but where the panel reached the opposite conclusion to the FTT in this case. Of course, the decision of one FTT is strictly not binding on another FTT as a matter of precedent, but the principle of judicial comity, or horizontal stare decisis, requires that a FTT should follow the decision of a previous tribunal of co-ordinate jurisdiction unless ‘convinced’ or ‘satisfied’ (there is no practical difference between the two) that the earlier decision was wrong (see Gilchrist v HMRC [2014] UKUT 169 (TCC) at [91] to [94]). There are good reasons for this practice: it promotes consistency in judicial decisions and predictability of outcomes thereby avoiding re-litigation of identical legal issues, and it builds public confidence in the appeals process by ensuring that similar cases are treated similarly over time. If a later FTT considers that a previous decision of the FTT on materially identical facts and/or law was wrong, then it should set out why. It need not do so at great length but simply stating, as the FTT did in this case, that other decisions not on the same point are preferred leaves the reader in the dark. We consider that, where a FTT decides not to follow the decision of another FTT on the same or a materially similar point, it should explain why it has taken a contrary view.

The third sentence of [57] was the subject of some debate at the hearing. Ms Lemos said that the FTT was saying that, even if it was wrong about everything it said in the first two sentences of [57], there were other reasons why the paddock was not part of the grounds of the house. Mr Cannon submitted that the first sentence of [57] should be read as a self-contained section and when the FTT said in the third sentence “However, if I am wrong on this point ...”, that was only referring to Brandbros and not to the comments about not being obliged to follow Ladson Preston. Mr Cannon contended that, on that interpretation, it was not wrong for the FTT to take the grazing lease into account in considering the pointers in [59].

We do not accept Mr Cannon’s reading of [57] as there seems no justification for applying the last sentence of the paragraph to the second sentence only and not the first. The cases of Ladson Preston in the first sentence and Brandbros in the second both went to the same point in the appeal, namely whether the grant of the grazing lease after completion of the purchase affected the character of the interest acquired or should be ignored. In the last sentence of [57], the FTT was saying that even if it was wrong to take account of the grazing lease in determining whether the paddock was part of the grounds of the house, there were other reasons for allowing the appeal.

The FTT sets out its reasons for reaching its conclusion at [58] – [60] which are as follows:

The only issue in the appeal before the FTT was whether the paddock acquired by Mr and Mrs Suterwalla as part of their purchase of the Property on 11 December 2020 was part of the grounds of the house (it not being argued that the paddock was a garden or part of one or that the purchase of the paddock was a separate transaction). If so then the relevant land consisted entirely of residential property and the transaction was chargeable to SDLT at the higher rate, and HMRC’s appeal must be allowed. If the paddock was not part of part of the grounds of the house, then the transaction includes land that is not residential property and is chargeable at a lower rate of SDLT.

As Ms Lemos accepted at the hearing, Grounds 1 and 2 are, in essence, making the same point, namely that the FTT erred in taking the grazing lease into account when considering whether the paddock was part of the grounds of the house. In Ground 3, HMRC contend that, even if the grazing lease is taken into account, the FTT erred in deciding that the paddock was not part of the grounds of the house.

It seems to us that, in a case such as this one, it is appropriate to consider first whether, in light of the facts found, the FTT was entitled to find that the paddock was not part of the grounds even if the grazing lease is disregarded. The FTT held in [57] of the Decision that if it were wrong to have regard to the grazing lease, there were still sufficient other reasons to allow the appeal, ie to find that the paddock was not part of the grounds. The FTT restated its position on the decision granting HMRC permission to appeal where it said there was no error of law in the Decision “even if the relevance or otherwise of the grazing lease is ignored.”

The “other reasons” are included in the list of reasons set out in [58] – [60]. If we conclude that the FTT was entitled to find that the paddock, without the grazing lease, was not part of the grounds then we do not need to go further. However, if we conclude that the FTT was not entitled so to find then we must consider whether the existence of the grazing lease makes any difference to the characterisation of the paddock and, if so, whether the FTT was entitled to take it into account.

We begin by considering whether, disregarding the grazing lease, the facts found and the other reasons support a conclusion that the paddock was not part of the grounds of the house. The FTT’s reasons in [58] – [60] contain references to the grazing lease in [58], [59(7)], [59(8)], [59(9)], [60(3)] and [60(4)] which must be excluded if the grazing lease is to be disregarded. Excluding those references leaves the following reasons for concluding that the paddock was not part of the grounds of the house:

Ms Lemos acknowledged that the citation of [116] of How Development in [32] showed that the FTT had correctly identified that it was required to undertake a multi-factorial evaluation in determining the issue. She contended that nevertheless the FTT erred in the approach it took to carrying out the evaluative judgment. HMRC’s case was that, if the FTT had had regard to, and given due weight to, the relevant facts, the only possible conclusion that it could have reached was that the Property was a residential property. Ms Lemos submitted that the errors were of such a nature that they crossed the threshold that permits the UT to interfere with the findings made by the FTT.

Ms Lemos submitted that the FTT erred in taking the following irrelevant factors into account:

We can deal with these two points briefly. In relation to the first, Mr Cannon submitted that the fact that Mr and Mrs Suterwalla would rather not have acquired the paddock as part of the Property was relevant to whether the paddock formed part of the garden and grounds. We do not accept that submission. We agree with Ms Lemos that whether or not Mr and Mrs Suterwalla would have preferred to buy the Property without the paddock has no bearing on the SDLT liability of the chargeable interest that they did in fact acquire. We acknowledge that the view of the purchasers might be capable of being evidence of whether a typical buyer might regard the paddock as part of the grounds of the house. Such a view must necessarily be highly subjective but the FTT would be entitled to take it into account. However, in this case, Mr Suterwalla’s evidence, recorded in [38], that he “would not have purchased the paddock if it had been possible not to do so” says nothing about whether he regarded the paddock as forming part of the grounds of the house. Mr Suterwalla’s view might equally support the conclusion that he simply preferred to purchase a house with smaller grounds which required less upkeep.

As to the second point, we do not have to decide whether the fact that the horses would remove the need for Mr Suterwalla to cut the grass in the paddock as that is predicated on there being a grazing lease and we are now considering whether the FTT was entitled to find that the paddock was not part of the grounds of the house even if there was no grazing lease.

Ms Lemos also contended that the FTT failed to have regard to material factors which contradicted its finding of separate use, namely that:

We do not accept that the FTT failed to have regard to these factors.

Ms Lemos also submitted that the FTT erred in giving undue weight to the fact that the paddock was not visible from the house. She accepted that it could be a relevant factor which might support a finding that there was some separate use. Ms Lemos contended that, on its own, a finding that the paddock was not visible from the house could not be determinative of whether a piece of contiguous land was not grounds. We agree with that statement but, in our view, the FTT did not treat the fact that the paddock was not visible from the house as determinative of the issue. It was one of the reasons given by the FTT in addressing the Faiers pointers in [59] and concluding that additional SDLT was not payable in [60].

Mr Cannon said that, in this ground, HMRC were making an Edwards v Bairstow (Footnote: ²) challenge. He submitted that we should be slow to interfere with the FTT’s multifactorial evaluation and referred to the comments by Lewison LJ in Fage UK Ltd & Anor v Chobani UK Ltd & Anor [2014] EWCA Civ 5 at [114] and [115]:

Mr Cannon also referred to Lidl Great Britain Ltd & Anor v Tesco Stores Ltd & Anor [2024] EWCA Civ 262 in which Arnold LJ set out the test on appeal at [110]:

Mr Cannon submitted that HMRC’s challenges in this ground were ‘island hopping’ against which Lewison LJ warned in Fage. He accepted that it was perfectly possible that, another FTT in another case with similar facts might have reached a different conclusion to that reached by the FTT in this case. He maintained that the test was not whether it was possible to come to a different view to the FTT but whether the FTT’s decision was so irrational in the judicial sense that no rational judge or tribunal could have reached that conclusion. Mr Cannon contended that the FTT found the necessary facts, drew appropriate inferences from them, gave reasons in sufficient detail and reached a conclusion that it was entitled to reach. The facts found by the FTT were rationally supported by the evidence and the FTT did not make any error of law in its evaluation of those facts or the conclusions that it reached. In short, the FTT was entitled to decide the case as it did whether or not a different FTT may have decided things differently and we should not interfere with that decision.

We accept Mr Cannon’s submissions on this point. In our view, the FTT identified the correct approach and found that the paddock was not part of the grounds of the house for reasons other than the grant of the grazing lease which the FTT set out in [59] and [60]. Although we agree that the FTT erred in [60(6)] in ascribing any weight to the fact that Mr Suterwalla would have preferred to buy the house without the paddock if it had been possible to exclude it from the purchase, that does not necessarily mean that the FTT’s conclusion is not supported by its other findings which are either unchallenged or, if challenged, we have upheld. The relevant findings are that:

We have also considered whether, although not referred to in [59] or [60], any of the other facts found by the FTT, disregarding facts relating to the grazing lease, support a finding that the paddock was part of the grounds of the house. The FTT recorded that the house, gardens and tennis court were purchased as part of a single transaction but also that the paddock was a separate title. Ms Lemos pointed out that there was no evidence of any commercial agreements in place for the use of the paddock prior to completion. In our view, the lack of evidence about use of the paddock by previous owners of the Property does not take matters any further.

In our view, it cannot be said that the FTT’s conclusion in the Decision is “rationally insupportable” and we are not persuaded that we are compelled to interfere with the FTT’s findings and evaluation. Accordingly, we decline to do so.

In view of our decision that the FTT was entitled to conclude that the paddock, without the grazing lease, was not part of the grounds of the house, we do not need to consider HMRC’s other grounds as their appeal must be dismissed. However, as we heard argument on the other grounds, it may be useful if we indicate briefly what our views would have been.

In the first and second grounds of appeal, HMRC contend that the FTT erred in declining to apply the reasoning in Ladson Preston and having regard to the grazing lease in determining whether the Property consisted entirely of residential property. The FTT stated that it was not required to follow Ladson Preston on the ground that it concerned multiple dwellings relief and not non-residential property. It is correct that the UT in Ladson Preston did not consider the question of whether land was residential or non-residential and, for that reason, we agree that the FTT was not bound by Ladson Preston. However, that does not mean that the analysis in Ladson Preston should not be applied to cases which concern mixed residential and non-residential property cases.

In [61] and [62] of Ladson Preston, which was quoted by the FTT in [52] of the Decision, the UT stated:

In our view, the relevant points to be taken from [61] and [62] of Ladson Preston are as follows:

We consider that the approach described by the UT in Ladson Preston and encapsulated in the points above is not restricted to cases where the issue is whether the subject matter of a transaction consists of multiple dwellings. It is relevant whenever the particular SDLT treatment or relief turns on the nature of the subject matter of a chargeable transaction.

We consider that the FTT should have applied that approach when considering whether the paddock was part of the grounds of the house and that, in not doing so, it erred. In considering whether the Property acquired by Mr and Mrs Suterwalla included land that was non-residential, the FTT should have focused its assessment on whether the paddock was part of the grounds of the house at the completion of the purchase of the Property. As the grazing lease in this case did not exist at the time of completion, it follows that it should not have formed part of the analysis of the nature of the chargeable interest acquired at that time.

Our conclusion does not mean that a grant of a grazing lease (or other interest) after completion can never be taken into account. The subsequent use of land may be evidence of its nature or character at the time of completion. For example, the grant of grazing lease by new owners after completion may formalise an informal arrangement between the previous owner and a neighbour which allowed horses to be kept and grazed on the land or be a reinstatement of historic commercial use. As discussed above, however, there was no evidence in this case of any previous use of the paddock to show that it was not part of the grounds. To put it another way, the evidence and the FTT’s findings of fact were consistent with the grazing lease being an entirely new use of the paddock which only commenced after Mr and Mrs Suterwalla had already acquired the chargeable interest on completion.

For the reasons given above, HMRC’s appeal is dismissed.

Any application for costs in relation to this appeal must be made in writing and served on the Tribunal and the person against whom it is made within one month after the date of release of this decision as required by rule 10(5)(a) and (6) of the Tribunal Procedure (Upper Tribunal) Rules 2008.