Bowen v HMRC: Applying the Multi-Factorial Test in SDLT for Residential Property

In Bowen v HMRC, the First-tier Tribunal (FTT) confirmed that adjacent properties acquired in the same transaction, where one was residential and the other was derelict, formed part of the grounds of a residential dwelling for Stamp Duty Land Tax (SDLT) purposes. Consequently, the transaction attracted residential SDLT rates rather than rates applicable to mixed-use properties. 

Mr Bowen (the "Appellant") purchased two separate leaseholds, Old Valley Farmhouse and the Granary, in a single transaction for £1,625,000. Old Valley Farmhouse comprised a farmhouse, outbuildings and over 14 acres of land. The Granary consisted of a derelict granary building on less than one acre. The buildings formed four sides of a rectangle, with the Granary on the western side. Both leasehold interests had originally been granted by the National Trust to the previous owners in 1998 and were later sold together under a single contract, documented by one transfer deed and accompanied by a single SDLT return. Although the Granary had planning permission for residential conversion, it remained derelict at the time of the transaction.    

The Appellant submitted an SDLT return treating the purchase as mixed-use property, calculating liability at £70,750. HMRC disagreed and subsequently issued a closure notice assessing SDLT at £108,750, on the basis that the entire transaction was residential property because the Granary formed part of the grounds of Old Valley Farmhouse. 

The central issue before the FTT was whether the Granary and its land formed part of the grounds of Old Valley Farmhouse under section 116(1) of the Finance Act 2003 (the "Act"), thereby constituting residential property. 

The Appellant contended that the Granary should be treated as a non-residential property, relying on HMRC capital gains tax guidance (HS283) that was in force at the transaction date. The Granary was separate, fenced off, and used for commercial sheep grazing. The FTT rejected this approach, confirming that capital gains tax guidance has no application to SDLT matters, as established by the Court of Appeal in Hyman v HMRC (2022). Instead, the FTT applied the multi-factorial test examining historic use, current use, legal constraints and geographical factors. Applying this test, the FTT found that at the transaction date there was no binding grazing agreement, the lease prohibited commercial use, the Granary was immediately adjacent to Old Valley Farmhouse sharing two boundaries. Crucially, the FTT noted that the Appellant acquired the Granary specifically to prevent third-party development near his residence.  

Concluding that the Granary functioned as an appendage to Old Valley Farmhouse, supporting its use as a dwelling, the FTT ruled the transaction to be residential and dismissed the appeal. 

Read the full decision of Bowen v HMRC [2023] UKFTT 992 (TC).