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The owners of a 16th century Grade II listed manor house have won a tribunal victory over HMRC over an extra stamp duty claim of more than £47,000.
The case at the First Instance Tribunal (FTT) centred on a dispute with HMRC over whether part of the 11-bedroom property was earmarked for commercial use.
Before the Tribunal, the owner of the property, Anne Marie Hurst, challenged a closure notice dated 17 August 2022, issued by HMRC under section 23 of the Finance Act 10 of 2003, on the grounds of unpaid Stamp Duty Land Tax (SDLT) due to the amount of £47,750.
HMRC concluded that the residential rate of SDLT applies to the purchase of Thoughtridge Manor, a £1.8 million property in Devon, on the basis that only part of the property is used for residential purposes, rather than the original non-residential rate that was paid on 21 August 2021, when the purchase transaction was completed and submitted.
HMRC believed the property was purely residential and challenged the appellant’s argument that part of the property was used as a “hotel or inn or similar establishment” as defined in section 49I of the Tax Administration Act 1970 as there was “insufficient evidence”, and began investigating the returns on 26 April 2022.
The appellant also argued that pasture land within the property was used by a farmer who had entered into a commercial lease, but the court also rejected the argument that the pasture land constituted the site.
However, it emerged that the pasture had been used “informally” by a local farmer for eight years, so when Mr Hirst acquired the land he formalised the deal, charging the farmer £500 a year as a tenant to graze his sheep and produce hay.
HMRC’s lawyers, C Thompson Jones, argued that the SDLT charge was intended to be “simple and applicable without the need for detailed fact-finding into uncertain matters, such as the parties’ subjective intentions as to the future use of the land”.
As for his bed and breakfast business, Hirst told the court he negotiated mortgages on the basis that the properties would be used as holiday accommodation and annexed around 30 per cent of the mansion to provide self-catering accommodation.
The holiday accommodation was advertised on various websites and was rented out under the name “Leat House”. Structurally it had private access to the outside, three bedrooms, living and dining rooms, a kitchen and a bathroom.
However, in assessing whether the provision of accommodation was a continuing viable business, Thompson Jones argued that the limited number of online reviews meant “bookings were too few and sporadic throughout the year, generating insufficient turnover to represent a commercial endeavour and therefore unable to adequately represent the commercial use of the property”.
He even suggested the previous owners were not selling B&B accommodation but were simply renting out rooms to cover mortgage costs, and denied claims that bookings had been affected by the 2020 pandemic lockdown.
In issuing its ruling, the court noted that “the facts discovered in this case are extremely limited.”
Adjudicator Amanda Brown KC said: “I consider that HMRC’s assumption that the previous owners were renting out the house to earn a living is not a reasonable assumption.
“There is no evidence of financial pressure on them and money appears to have been paid to obtain the refurbishment and associated reports and consents.”
But this was not the crux of the decision.
“The key issue is whether the scale of the activity of providing lodging to paying guests was sufficient to reach the threshold required to represent a commercial use of sufficient permanence and continuity to qualify the property as a HISE rather than merely a residential residence.”
The Tribunal ruled in Hurst’s favour “by a narrow margin”, stating that “because the property was being used as an establishment similar to a hotel or inn which met the description in section 116(3)(f), its suitability for use as a residential property was not taken into consideration and, as a result, the property is not residential property”.
As a result, the Tribunal ruled that no additional SDLT charges should be paid and allowed the appeal.