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Mixed Properties: 39 Fitzjohn’s Avenue Limited v HMRC

Published by Aastha Byanju
Published Date: May 14, 2024

Stamp Duty Land Tax (SDLT) plays a vital role in property transactions, ensuring that the appropriate tax is paid. However, determining the classification of a property can be a complex matter, as evidenced by a recent case involving 39 Fitzjohns Avenue Limited and HM Revenue and Customs (HMRC). The case centred around the classification of a “Property” known as 39 Fitzjohn’s Avenue, Hampstead, London NW3, and whether the surrounding land should be considered residential or Mixed-use for SDLT purposes.

The First Tier Tribunal (FTT) dismissed the appeal holding that the land in question is considered part of the dwelling for SDLT purposes and therefore is wholly residential.

Background 

On 18 May 2018, the property at 39 Fitzjohn’s Avenue was purchased for £19,750,000 by the developer (39 Fitzjohn’s Avenue Ltd). Residential rates for Stamp Duty Land Tax (SDLT) were paid. Cornerstone Tax 2020 Limited submitted a claim for overpayment relief on 1 April 2021, seeking a £1,899,250 refund. HMRC enquired into this and issued a closure notice, rejecting the refund. Conversely, the appellant argued that the property should be considered mixed-use due to non-residential elements.

Facts

The house on the property has a large garden, and the total area of the site is about 1.5 acres. An underground railway (the main Thameslink line) passed under the property; a ventilation shaft (excluded from the ownership of the property) formed an excluded island near the back of the garden.

The property consists of five Land Registry titles; the title to the area around the excluded ventilation shaft was a long leasehold, granted by a railway company in 1886, with reservations of rights in favour of the railway company. A small area around the ventilation shaft was walled off with a steel palisade fence above. The railway company had a right of access to the shaft over a track from the rear of the property (the track was in the same long lease) for maintenance but appeared only very rarely to gain access.

The appellant contended that the land should be deemed mixed-use due to the ventilation shaft for an underground railway tunnel and connected apparatus for commercial activities.

Facts - Complexities of Mixed Properties: 39 Fitzjohns Avenue Limited v HMRC

Along with that, the appellant’s second ground of appeal is that, at the date of completion, there was a commercial tenancy for the use of the workshop at the basement and ground level rendering the part not used or suitable for use as a dwelling.

The Upper Tier Tribunal (UTT) provides valuable insights into the Hyman case, which helps elucidate the test to be applied when considering whether the land forms part of the garden or grounds of a building is a multifactorial one. The case also highlights several factors such as other people having rights over the land does not necessarily stop the land from constituting grounds. This is so even where the rights of others impinge on the owner’s enjoyment of the grounds and even where those rights impose burdensome obligations on the owner.

Issues

  • Whether the ventilation shaft, its surrounding fence, and the restrictions outlined in the Indenture exclude a portion of the land acquired by the appellant from being considered part of the “garden or grounds” of 39 Fitzjohn’s Avenue. And if the property would be deemed mixed-use, subject to non-residential rates of Stamp Duty Tax (SDLT)?
  • Whether there was a commercial tenancy for one of the workshops in the house, rendering the part “not used or suitable for use as a dwelling.”

Appellant’s Submission 

The appellant argues that the ventilation shaft and the constructions around it - the wall and the fence (which will be collectively referred to as the ventilation shaft) were used for the commercial operations of Network Rail and Thameslink.

Further, the level of intrusion and alternative use of the ventilation shaft took it to the far end of the intrusion spectrum such that the land was not part of the grounds of the dwelling. However, FTT concluded that the entire land acquired by the appellant is part of the grounds of the dwelling at 39 Fitzjohn’s Avenue. The wall around the ventilation shaft and the fence are structures on the grounds so that the whole of the property is residential.

The appellant argues that the FTT failed to acknowledge that, at completion, a carpenter had a license to use a workshop within the house. The HMRC formally put the appellant to proof that a tenancy was in place, the terms of the agreement, the monthly rent, the activity that took place, and that it was more than a mere leisure activity.

The appellant failed to discharge the burden of proving that there was a commercial tenancy in place at the time of completion and has failed to prove that any part of the dwelling was unsuitable for use as a dwelling.

Ruling 

Ruling - Complexities of mixed properties

There is no evidence that any of the workshops had been used or adapted in such a way as to constitute a separate business area or in a way that would make it difficult to reincorporate the rooms for residential use. Therefore, a workshop can be used in a residential property for domestic or hobby purposes as well, thus, does not make the building unsuitable for use as a dwelling.

The FTT justified in finding that the land acquired by the appellant is part of the grounds of the dwelling and the wall around the ventilation shaft and the fence are structures on the grounds so that the whole of the property is residential.

Conclusion 

The FTT’s ruling states that the ventilation shaft, its apparatus, and the land on which it is constructed constitute the grounds of the dwelling or a structure on the grounds and the dwelling is used or suitable for use as a dwelling. The workshop mentioned on the floor plan did not have evidence to conclude that the workshop was being used for commercial purposes. Therefore, the property is wholly residential for SDLT.

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