The owner of a 16th-century Grade II listed manor house has beaten HMRC at tribunal over a bill for more than £47,000 in extra stamp duty.
The case at the First Tier Tribunal (FTT) centred around a dispute with HMRC over whether part of the 11-bedroom property was dedicated to commercial use.
At the tribunal, the owner of the property, Anne-Marie Hurst, challenged a closure notice dated 17 August 2022, issued by HMRC under paragraph 23, Schedule 10 of Finance Act 2003, for underpaid stamp duty land tax (SDLT) amounting to £47,750.
HMRC concluded that the residential rate of SDLT was due on the purchase of Sortridge Manor, a £1.8m property in Devon, not the original non-residential rate paid on 21 August 2021 when the purchase transaction was completed and filed on the basis that only part of the property was used for residential purposes.
HMRC opened an enquiry into the return on 26 April 2022 on the grounds that it believed the property was purely residential and disputing the appellant’s assertion that part of the property was used as a ‘hotel or inn or similar establishment’ as defined in section 49I Taxes Management Act 1970 as there was ‘insufficient evidence’.
It also refuted a claim that a meadow in the property constituted grounds even though the appellant claimed it was used by a farmer under a commercial lease.
But it transpired that the meadow had been used by a local farmer for eight years on an ‘informal basis’, so Hurst formalised the arrangement when she acquired the property, charging him £500 a year as a tenant to graze his sheep and produce hay.
HMRC lawyer Mr C Thompson-Jones argued 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’.
Referring to the B&B business, Hurst told the tribunal that she negotiated her mortgage on the basis that the property would be used to provide holiday accommodation and she annexed approximately 30% of the manor house to offer self-catering accommodation.
The holiday accommodation was promoted on various websites and was let under the name Leat House. Structurally it had its own external access, three-bedrooms, living and dining room, kitchen and bathroom.
However, when assessing whether the accommodation provision was an ongoing viable business, Thompson-Jones asserted that as there were only a limited number of online 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’.
He even suggested that the previous owners were just renting out rooms to cover the cost of their mortgage rather than selling bed and breakfast accommodation and rejected any argument that bookings had been affected by pandemic lockdowns during 2020.
When making the ruling, the tribunal stated that ‘the facts we have found in the present case are highly marginal’.
Tribunal Judge Amanda Brown KC stated: “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.”
But this was not the crux of the decision.
‘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?’
The tribunal ruled in favour of Hurst ‘by the finest of margins’, stating ‘the property was used as an establishment similar to a hotel or inn meeting the description in section 116(3)(f) such that no account is to be taken of its suitability for use as a dwelling with the consequence that the property is not residential property’.
Consequently, the tribunal ruled that the additional SDLT charge was not due and allowed the appeal.
