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HARJONO & SANTOSO V HMRC TC/2023/00910

This decision concerned whether the purchase of a house, garden and a 1.5 acre paddock was of mixed residential and non-residential property for SDLT purposes because of the existence at the very point of completion of a commercial grazing lease over the paddock.

Patrick Cannon represented the purchasers, and the FTT decided that the paddock was part of the grounds of the dwelling and was, therefore, residential property, notwithstanding the existence of the commercial grazing lease. Despite this result, the decision contains important elements that will both help and hinder taxpayers and HMRC in the realm of mixed-use claims. Indeed, it might be fair to say that the decision may leave both sides scratching their heads over the meaning and application of the FTT’s test, contrasting the “ultimate use” with the “intermediate use” of the land in question.

Taxpayers will be helped by the FTT’s analysis that a grazing agreement signed before completion and dated by their solicitor at the same time as the land transfer on the day of completion meant that the property was encumbered by the grazing agreement at the point of completion. HMRC will, however, be heartened by the FTT’s rejection of “commercial use” as a “slam dunk” or knockout point that means the land affected by “commercial use” must automatically be prevented from being a part of the grounds of a dwelling. Essentially, the FTT found that the grazing agreement, in this case, was not commercial enough and, in a novel approach, said that the weight to be given to the use of the land in question is to be largely determined by the “ultimate use” of that land and not by any “intermediate use”. An example of this given by the FTT was quarrying the land, which, in its view, would exclude the land affected from being grounds of the dwelling regardless of whether the terms of the lease were for commercial rent or a peppercorn and this was because the “ultimate use” was quarrying. Some might struggle with this concept, given that most paddocks are not quarried. And, in a rather brave detour from the facts of the case in hand, the FTT also suggested that a dwelling on the paddock that was used for a letting business was likely to weigh heavily against that land comprising the grounds of the main dwelling. This remark will be of some concern to HMRC, although they will be pleased with the FTT’s view that “commercial” is a weasel word, and one must look through the commercial agreement and consider the end use of the land as well. Overall, then, there is much to feast on in this wide-ranging and thoughtful decision.

You can read the full decision here.

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