In the case of James Faiers v HMRC, the appellant contested the closure notice issued by HMRC regarding the Stamp Duty Land Tax (SDLT) classification of a property purchased by the appellant.
Initially, SDLT was paid on the assumption that the property was solely residential, but the appellant later self-assessed it as mixed/non-residential due to the presence of a commercial electricity distribution network operated by Eastern Power Network (EPN) on the property.
HMRC conducted an enquiry into the amended self-assessment and issued a closure notice, concluding that the property acquisition did not qualify as a mixed-use transaction. The appellant appealed against this notice, and the key question was whether the property should be classified as mixed/non-residential or solely residential for SDLT purposes.
According to Section 42 of the Finance Act 2003, SDLT is charged on "land transactions," defined as the acquisition of a chargeable interest.
The applicable SDLT rates depend on whether the transaction involves residential or non-residential property.
During the proceedings, the appellant presented evidence to the tribunal, including the presence of a power network consisting of electricity cables crossing the property. The appellant argued that the electricity network was part of a separate commercial activity and should not be considered as grounds for classifying the property as mixed/non-residential.
Referring to previous cases such as Hyman and Goodfellow v HMRC  EWCA civ 185, the appellant argued that the land affected by the commercial electricity network was not available for the occupants to use as they wished, making it separate from the residential grounds. The appellant also cited Gary Withers v HMRC  UKFTT 0433 (TC), where the land was used for a self-standing function, affecting the landowner's use and enjoyment of the property.
HMRC, on the other hand, contended that the presence of the power network did not prevent the entire property from being classified as residential. They argued that although the power network was a commercial activity, it was secondary to the role of the land as garden or grounds. HMRC acknowledged that the network might restrict usage in the affected area but highlighted the absence of physical separation and the free access beneath the electricity lines.
Upper Tribunal Tax (UTT) Ruling
The Upper Tribunal Tax (UTT) considered the arguments presented and examined the nature of the property and the impact of the power network. The tribunal acknowledged that the network served a commercial purpose and was separate from the residential use of the property.
However, they emphasized that the land in question was contiguous with and surrounded the dwelling, without any significant physical barriers. The presence of the network did not substantially affect the layout or appearance of the land.
The UTT also noted that while safety considerations limited activities close to the cables, low-level activities, such as mowing the grass, could be safely carried out under the cables. As a result, the UTT ruled that the acquisition of the property by the appellant was solely for residential purposes under Section 116(1)(b) of the Finance Act 2003. Therefore, the residential rates should be used to calculate the SDLT chargeable on the acquisition.
In conclusion, the case of James Faiers v HMRC highlights the significance of the commercial use of a property and its implications for SDLT classification. While the presence of a commercial activity on a property does not automatically make it non-residential, the specific circumstances and impact on the residential use and enjoyment of the property must be considered. Proper assessment and understanding of these factors are essential to ensure accurate SDLT classification and compliance with tax regulations.
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