Michael v HMRC, SDLT, house with 3.4 ac of woodland, mixed property?

The First Tier Tribunal, in the Michael v HMRC case, had to decide whether a house, bought with 3.4 acres of woodland, counted as purely residential property (in which case the SDLT would be ￡93,750) or as mixed property (when the SDLT would be ￡64,500).??

It was held that the woodland was part of the “grounds” of the house, so the property was residential.? The decision can be found on Patrick Cannon’s website; he represented Mr and Mrs Michael. https://cannonchambers.co.uk/wp-content/uploads/2024/04/decision-TC-2022-12710-Mr-and-Mrs-Michael-02.4.24-1.pdf?

Patrick has put the plan from a 1997 transfer, referred to in the decision, on his webpage here: https://cannonchambers.co.uk/notable-cases/mr-mrs-michael-v-hmrc/? I have had a stab at colour coding it (pink for the house and half acre, and green for the woodland).?

Hookwood House is a rural five bedroom house with a double garage and garden (the house and garden being referred to as the “Half Acre”).? It came with a further 3.4 acres of adjoining woodland which the evidence showed had been unused at the time of completion.? It was overgrown, but could be seen from the house and provided something of a barrier between the Half Acre and a bridleway the other side of the Woodland.?

The judge adopted the “pointers” set out in an earlier decision of Faiers https://www.patrickcannon.net/wp-content/uploads/2023/03/Decision-TC-2021-02112-James-Faiers-14.03.23.pdf (about a property with an electricity pole in the garden and crossed by two high voltage electricity cables)? That case summarised pointers derived from the earlier Tribunal decisions considering whether a particular piece of land can be said to be grounds “of” a dwelling. ?The pointers, as set out in Faiers, are below.?

The judge in the Michael case applied the pointers, saying he had at “the forefront of my mind that all relevant factors must be considered and weighted against each other, that no single factor is likely to be determinative by itself and not all factors are of equal weight and one strong factor could outweigh several weaker or contrary indicators.”?

Here is how he applied the factors:?

(a) Historic use – there is no suggestion that the Woodland has been used otherwise than as woodland.

(b) Layout/proximity – The Woodland is at the top of the Half Acre but contiguous with it. The Woodland can be seen from Hookwood House and enhances the rural character of the Property.

(c) Extent – the Woodland extends to 3.4 acres and is relatively large by comparison to the Half Acre but there is no limitation in s116 FA 2003 as to the size of the land. The size of the Woodland is appropriate to a dwelling of this size in a semi-rural location, the two properties to the immediate right of Hookwood House have land similarly extending north-east that mirrors the shape of the Woodland and is of a similar or greater acreage to the Woodland.

(d) Legal factors/constraints - there were no legal factors or constraints preventing the Appellants from using the Woodland with Hookwood House and the Half Acre on the EDT.

(e) Connection – the Woodland is connected directly with the Half Acre.

(f) Common ownership – the Woodland was in common ownership.

(g) Contiguity – The Woodland is contiguous to the Half Acre.

(h) Functionality – the Woodland provides a degree of security and privacy to Hookwood House and the Half Acre.

(i) Unconnected purpose – the Woodland is not used or occupied for a purpose separate from and unconnected with the Half Acre.?

It is interesting that a “passive” function was enough for the woodland to count as part of the grounds of the house; there was no active use of the woodland, but its presence was found to provide some security and privacy for the house.?

The line of cases on “garden and grounds” will continue to be relevant because the outcome of consultation published with the Budget on 6 March 2024 https://www.gov.uk/government/consultations/stamp-duty-land-tax-mixed-property-purchases-and-multiple-dwellings-relief/outcome/stamp-duty-land-tax-mixed-property-purchases-and-multiple-dwellings-relief-summary-of-responses--3 was that: “the government has decided not to make any legislative changes introducing new apportionment rules for mixed-property purchases.”?

There is more caselaw to come, with:?

• The appeal against the Suterwalla FTT decision https://www.patrickcannon.net/notable-cases/suterwalla-v-hmrc/ being due to be heard by the Upper Tribunal on 22 April 2024.
• A decision is awaited from a FTT hearing at Manchester in January 2024 where Patrick represented the taxpayer.? It involves land where grass was grown to be cut for hay.? Patrick mentions it in this blog https://youtu.be/ZStEb5oK334? with Bell Howley Perrotton at 34 minutes in.

The pointers from Faiers

https://www.patrickcannon.net/wp-content/uploads/2023/03/Decision-TC-2021-02112-James-Faiers-14.03.23.pdf

(1) “Grounds” is an ordinary (albeit a little archaic, at least in the view of some of my fellow judges) English word which has to be applied to different sets of facts. So, in deciding whether a particular piece of land comprises all or part of the “grounds” of a dwelling, it is necessary to adopt an approach which involves identifying the factors relevant in that case and balancing them when they do not all point in the same direction.

(2) The discussion in HMRC’s SDLT Manual is a fair and balanced starting point for this exercise, but each case needs to be considered separately in the light of its own factors and the weight to be attached to them. Listing them briefly, the factors addressed in the SDLT Manual are: historic and future use; layout; proximity to the dwelling; extent; legal factors/constraints.

(3) Section 116(1)(b) refers to a garden or grounds “of” a dwelling. The word “of” shows that there must be a connection between the garden or grounds and the dwelling.

(4) Common ownership is a necessary condition for adjacent land to become part of the grounds of the dwelling, but it is clearly not a sufficient one.

(5) Contiguity is important; grounds should be adjacent to or surround the dwelling; Hyman.

(6) One requirement (in addition to common ownership) might be thought to be that the use or function of the adjoining land must be to support the use of the building concerned as a dwelling (Myles-Till). That may be putting the test too high to the extent it suggests that unused land cannot form part of the “grounds” of a dwelling (cp Hyman in the FTT at [62]). Such a requirement must also contend with the decision of the Court of Appeal in Hyman and Goodfellow that it is not necessary, in order for garden or grounds to count as residential property, they must be needed for the reasonable enjoyment of the dwelling having regard to its size and nature.

(7) In that light, the “functionality” requirement might perhaps be put the other way round: adjoining land in common ownership will not form part of the “grounds” of a dwelling if it is used (Hyman in the FTT at [62]) or occupied (Withers at [158]) for a purpose separate from and unconnected with the dwelling. That purpose need not be (although it commonly will be) commercial (Withers). This is subject to the points discussed in (8) and (9) below.

(8) Other people having rights over the land does not necessarily stop the land constituting grounds. For example, the fact that there is a right of way over grounds might impinge on the owners’ enjoyment of the grounds and even impose burdensome obligations on them, but such rights do not make the grounds any the less the grounds of that person’s residence. As the recent decision of the Supreme Court in Fearn and others v Board of Trustees of the Tate Gallery, [2023] UKSC 4, indicates, other people may have a range of rights that can impact on a landowner’s use and enjoyment of their land and statute law intervenes in a range of fields (planning and environmental law being obvious examples). Indeed, once one accepts (as we are bound by authority to accept) that “grounds” extends beyond the land needed for the reasonable enjoyment of a dwelling, it seems almost inevitable, particularly in a rural context, that third parties (not the landowner) may have rights over or use parts of the “grounds” without that affecting the status of the land for these purposes. All of that together must mean that, whatever else “available to the owners to use as they wish” (Hyman at [62]) may mean, it cannot mean (and Judge McKeever, who herself referred to others’ rights, clearly did not intend it to refer to) untrammelled dominion unaffected by the presence or rights of others.

(9) 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. At one end of the spectrum, rights of way will generally not have this effect, even when the right is used for a commercial purpose and the existence and exercise of those rights is unconnected with the dwelling. At the other end of the spectrum, the use of a large, defined tract of land (which had historically been in separate ownership) for agricultural purposes by a third party who has rights enabling them to use that land in that way will result in that area of land not forming part of the grounds of a dwelling (Withers).”