![UT/2023/000083 - [2024] UKUT 00188 (TCC)](https://backend.juristeca.com/files/emisores/logo_ICfrj4g.png){kind=logo}
Discussion
Discussion
The only issue in the appeal before the FTT was whether the paddock acquired by Mr and Mrs Suterwalla as part of their purchase of the Property on 11 December 2020 was part of the grounds of the house (it not being argued that the paddock was a garden or part of one or that the purchase of the paddock was a separate transaction). If so then the relevant land consisted entirely of residential property and the transaction was chargeable to SDLT at the higher rate, and HMRC’s appeal must be allowed. If the paddock was not part of part of the grounds of the house, then the transaction includes land that is not residential property and is chargeable at a lower rate of SDLT.
As Ms Lemos accepted at the hearing, Grounds 1 and 2 are, in essence, making the same point, namely that the FTT erred in taking the grazing lease into account when considering whether the paddock was part of the grounds of the house. In Ground 3, HMRC contend that, even if the grazing lease is taken into account, the FTT erred in deciding that the paddock was not part of the grounds of the house.
It seems to us that, in a case such as this one, it is appropriate to consider first whether, in light of the facts found, the FTT was entitled to find that the paddock was not part of the grounds even if the grazing lease is disregarded. The FTT held in [57] of the Decision that if it were wrong to have regard to the grazing lease, there were still sufficient other reasons to allow the appeal, ie to find that the paddock was not part of the grounds. The FTT restated its position on the decision granting HMRC permission to appeal where it said there was no error of law in the Decision “even if the relevance or otherwise of the grazing lease is ignored.”
The “other reasons” are included in the list of reasons set out in [58] – [60]. If we conclude that the FTT was entitled to find that the paddock, without the grazing lease, was not part of the grounds then we do not need to go further. However, if we conclude that the FTT was not entitled so to find then we must consider whether the existence of the grazing lease makes any difference to the characterisation of the paddock and, if so, whether the FTT was entitled to take it into account.
We begin by considering whether, disregarding the grazing lease, the facts found and the other reasons support a conclusion that the paddock was not part of the grounds of the house. The FTT’s reasons in [58] – [60] contain references to the grazing lease in [58], [59(7)], [59(8)], [59(9)], [60(3)] and [60(4)] which must be excluded if the grazing lease is to be disregarded. Excluding those references leaves the following reasons for concluding that the paddock was not part of the grounds of the house:
…
‘Grounds of a dwelling’ in this appeal clearly refers to the garden and tennis court;
The discussion in HMRC’s SDLT Manual refers to historic and future use; layout; proximity to the dwelling. The paddock, although lying alongside the end of the garden and tennis court is not close to the dwelling house and is not visible from it;
There is only one small gate between the gardens and the paddock;
There is common ownership between the dwellinghouse, gardens, tennis court and the paddock;
Although adjacent to the gardens and tennis court the paddock does not form an integral part of the property;
The paddock does not support the dwellinghouse nor the garden nor the tennis court;’
…
…
The paddock is not visible from the dwelling house nor from the gardens;
There is only one small gate access from the gardens to the paddock;
…
The title to the dwelling house, gardens and tennis court is distinct from the title to the paddock.
The Appellants would not have bought the paddock if it had been possible to exclude it from the purchase.”
Ms Lemos acknowledged that the citation of [116] of How Development in [32] showed that the FTT had correctly identified that it was required to undertake a multi-factorial evaluation in determining the issue. She contended that nevertheless the FTT erred in the approach it took to carrying out the evaluative judgment. HMRC’s case was that, if the FTT had had regard to, and given due weight to, the relevant facts, the only possible conclusion that it could have reached was that the Property was a residential property. Ms Lemos submitted that the errors were of such a nature that they crossed the threshold that permits the UT to interfere with the findings made by the FTT.
Ms Lemos submitted that the FTT erred in taking the following irrelevant factors into account:
the fact that Mr and Mrs Suterwalla would not have bought the paddock if it had been possible to exclude it from the purchase; and
the fact that Ms Pragnell’s horses would keep the grass in the paddock in order was of considerable financial benefit to Mr and Mrs Suterwalla.
We can deal with these two points briefly. In relation to the first, Mr Cannon submitted that the fact that Mr and Mrs Suterwalla would rather not have acquired the paddock as part of the Property was relevant to whether the paddock formed part of the garden and grounds. We do not accept that submission. We agree with Ms Lemos that whether or not Mr and Mrs Suterwalla would have preferred to buy the Property without the paddock has no bearing on the SDLT liability of the chargeable interest that they did in fact acquire. We acknowledge that the view of the purchasers might be capable of being evidence of whether a typical buyer might regard the paddock as part of the grounds of the house. Such a view must necessarily be highly subjective but the FTT would be entitled to take it into account. However, in this case, Mr Suterwalla’s evidence, recorded in [38], that he “would not have purchased the paddock if it had been possible not to do so” says nothing about whether he regarded the paddock as forming part of the grounds of the house. Mr Suterwalla’s view might equally support the conclusion that he simply preferred to purchase a house with smaller grounds which required less upkeep.
As to the second point, we do not have to decide whether the fact that the horses would remove the need for Mr Suterwalla to cut the grass in the paddock as that is predicated on there being a grazing lease and we are now considering whether the FTT was entitled to find that the paddock was not part of the grounds of the house even if there was no grazing lease.
Ms Lemos also contended that the FTT failed to have regard to material factors which contradicted its finding of separate use, namely that:
it was possible to access the paddock from the rest of the Property;
the paddock and the remainder of the Property were marketed and sold as a single property;
there was no evidence of any historic separate use of the paddock;
the paddock was contiguous with the remainder of the Property; and
the paddock could form part of the grounds of the dwelling even if not used.
We do not accept that the FTT failed to have regard to these factors.
The FTT specifically referred to the fact that it was possible to access the paddock from the rest of the Property in [37], [59(3)] and [60(2)]. Given the FTT referred specifically to the access to the paddock from the gardens in its reasons for concluding that the paddock was not part of the gardens, it cannot be said that the FTT did not have regard to the possibility of access. It may be argued that the FTT did not give the existence of the small gate between the gardens and the paddock sufficient weight but deciding what weight to give individual factors is part of the evaluative exercise.
In [37], the FTT referred to “the sales brochure from Knight Frank and Savills and in particular the view on the back page which clearly showed the paddock beyond the tennis court with a hedge dividing the two pieces of land and only a small gate giving access to the paddock from Woodlands House”. The brochure is mentioned again in [38], [50], [55] and [56]. We were shown the same brochure and there could have been no doubt about how the Property was marketed and it is clear from the many references in the Decision that the FTT had that in mind.
The FTT clearly understood that historic use is a relevant factor because it is mentioned in pointer 2 in Faiers which was quoted and adopted by the FTT and referred to again in [59(2)]. The FTT records, in [49], HMRC’s submission that the fact that “the Appellants were not aware of any commercial agreements in place for the use of the paddock prior to completion indicated that the entire Property was, prior to the grazing lease, considered as domestic” shows that the FTT had regard to the absence of any evidence of separate use of the paddock previously. Again, it might be argued that the FTT should have given more weight to the absence of evidence about historic use but that was a matter for evaluation.
The fact that the paddock was contiguous with the remainder of the Property is abundantly clear from the description of the Property in the sales brochure and the description of it in [37]. The FTT dealt with the issue of contiguity, pointer 5 in Faiers, at [59(5)] when it said “[a]lthough adjacent to the gardens and tennis court the paddock does not form an integral part of the property”. Ms Lemos criticises the use of the word “integral” as an erroneous rephrasing of the test. We do not agree that the FTT substituted a new test. It had already stated that the paddock was “adjacent” to the gardens which is the word used in pointer 5 in Faiers. The comment about integral part seems to us to be a separate point in response to the submissions of Mr Cannon recorded at [41] and by HMRC in [46].
The subject of use is discussed by Judge McKeever in [62] of Hyman v HMRC [2019] UKFTT 469 (TC) and by Judge Baldwin in pointers 6 and 7 in Faiers. Both passages are quoted by the FTT in the Decision. The FTT deals with use at [59(6)] and [59(7)] but the latter paragraph assumes that the grazing lease has been granted so we disregard it. HMRC may disagree with the FTT’s comments on use in [59(6)] but it cannot be said that the FTT did not have regard to the issue of use or lack of use.
Ms Lemos also submitted that the FTT erred in giving undue weight to the fact that the paddock was not visible from the house. She accepted that it could be a relevant factor which might support a finding that there was some separate use. Ms Lemos contended that, on its own, a finding that the paddock was not visible from the house could not be determinative of whether a piece of contiguous land was not grounds. We agree with that statement but, in our view, the FTT did not treat the fact that the paddock was not visible from the house as determinative of the issue. It was one of the reasons given by the FTT in addressing the Faiers pointers in [59] and concluding that additional SDLT was not payable in [60].
Mr Cannon said that, in this ground, HMRC were making an Edwards v Bairstow (Footnote: 2) challenge. He submitted that we should be slow to interfere with the FTT’s multifactorial evaluation and referred to the comments by Lewison LJ in Fage UK Ltd & Anor v Chobani UK Ltd & Anor [2014] EWCA Civ 5 at [114] and [115]:
Appellate courts have been repeatedly warned, by recent cases at the highest level, not to interfere with findings of fact by trial judges, unless compelled to do so. This applies not only to findings of primary fact, but also to the evaluation of those facts and to inferences to be drawn from them. … The reasons for this approach are many. They include:
The expertise of a trial judge is in determining what facts are relevant to the legal issues to be decided, and what those facts are if they are disputed.
The trial is not a dress rehearsal. It is the first and last night of the show.
Duplication of the trial judge’s role on appeal is a disproportionate use of the limited resources of an appellate court, and will seldom lead to a different outcome in an individual case.
In making his decisions the trial judge will have regard to the whole of the sea of evidence presented to him, whereas an appellate court will only be island hopping.
The atmosphere of the courtroom cannot, in any event, be recreated by reference to documents (including transcripts of evidence).
Thus even if it were possible to duplicate the role of the trial judge, it cannot in practice be done.
It is also important to have in mind the role of a judgment given after trial. The primary function of a first instance judge is to find facts and identify the crucial legal points and to advance reasons for deciding them in a particular way. He should give his reasons in sufficient detail to show the parties and, if need be, the Court of Appeal the principles on which he has acted and the reasons that have led him to his decision. They need not be elaborate. There is no duty on a judge, in giving his reasons, to deal with every argument presented by counsel in support of his case. His function is to reach conclusions and give reasons to support his view, not to spell out every matter as if summing up to a jury. Nor need he deal at any length with matters that are not disputed. It is sufficient if what he says shows the basis on which he has acted. These are not controversial observations …”
Mr Cannon also referred to Lidl Great Britain Ltd & Anor v Tesco Stores Ltd & Anor [2024] EWCA Civ 262 in which Arnold LJ set out the test on appeal at [110]:
“It is common ground that, in so far as the appeals challenge findings of fact made by the judge, this Court is only entitled to intervene if those findings are rationally insupportable … Equally, it is common ground that, in so far as the appeals challenge multi-factorial evaluations by the judge, this Court is only entitled to intervene if the judge erred in law or principle …”
Mr Cannon submitted that HMRC’s challenges in this ground were ‘island hopping’ against which Lewison LJ warned in Fage. He accepted that it was perfectly possible that, another FTT in another case with similar facts might have reached a different conclusion to that reached by the FTT in this case. He maintained that the test was not whether it was possible to come to a different view to the FTT but whether the FTT’s decision was so irrational in the judicial sense that no rational judge or tribunal could have reached that conclusion. Mr Cannon contended that the FTT found the necessary facts, drew appropriate inferences from them, gave reasons in sufficient detail and reached a conclusion that it was entitled to reach. The facts found by the FTT were rationally supported by the evidence and the FTT did not make any error of law in its evaluation of those facts or the conclusions that it reached. In short, the FTT was entitled to decide the case as it did whether or not a different FTT may have decided things differently and we should not interfere with that decision.
We accept Mr Cannon’s submissions on this point. In our view, the FTT identified the correct approach and found that the paddock was not part of the grounds of the house for reasons other than the grant of the grazing lease which the FTT set out in [59] and [60]. Although we agree that the FTT erred in [60(6)] in ascribing any weight to the fact that Mr Suterwalla would have preferred to buy the house without the paddock if it had been possible to exclude it from the purchase, that does not necessarily mean that the FTT’s conclusion is not supported by its other findings which are either unchallenged or, if challenged, we have upheld. The relevant findings are that:
the paddock and the house (with gardens and tennis court) have separate titles at the Land Registry;
the paddock is not close to the house and is not visible from the house or gardens;
the paddock is only accessed from the gardens by a single small gate;
the paddock does not support the dwellinghouse, garden or the tennis court; and
the paddock does not form an integral part of the Property.
We have also considered whether, although not referred to in [59] or [60], any of the other facts found by the FTT, disregarding facts relating to the grazing lease, support a finding that the paddock was part of the grounds of the house. The FTT recorded that the house, gardens and tennis court were purchased as part of a single transaction but also that the paddock was a separate title. Ms Lemos pointed out that there was no evidence of any commercial agreements in place for the use of the paddock prior to completion. In our view, the lack of evidence about use of the paddock by previous owners of the Property does not take matters any further.
In our view, it cannot be said that the FTT’s conclusion in the Decision is “rationally insupportable” and we are not persuaded that we are compelled to interfere with the FTT’s findings and evaluation. Accordingly, we decline to do so.
In view of our decision that the FTT was entitled to conclude that the paddock, without the grazing lease, was not part of the grounds of the house, we do not need to consider HMRC’s other grounds as their appeal must be dismissed. However, as we heard argument on the other grounds, it may be useful if we indicate briefly what our views would have been.
In the first and second grounds of appeal, HMRC contend that the FTT erred in declining to apply the reasoning in Ladson Preston and having regard to the grazing lease in determining whether the Property consisted entirely of residential property. The FTT stated that it was not required to follow Ladson Preston on the ground that it concerned multiple dwellings relief and not non-residential property. It is correct that the UT in Ladson Preston did not consider the question of whether land was residential or non-residential and, for that reason, we agree that the FTT was not bound by Ladson Preston. However, that does not mean that the analysis in Ladson Preston should not be applied to cases which concern mixed residential and non-residential property cases.
In [61] and [62] of Ladson Preston, which was quoted by the FTT in [52] of the Decision, the UT stated:
We agree with HMRC, however, that paragraph 2 of Schedule 6B, the provision that confers MDR, does not refer to the effective date of a transaction at all, with the result that debates about whether the definition of “effective date” in s119 specifies the entirety of a day, or a point in time, have no bearing on the availability or otherwise of MDR in the circumstances of these appeals.
Rather, as we have noted, paragraph 2 asks a question about the nature of the chargeable interest that AKA acquired. Moreover, in the circumstances of these appeals, the effective date of the transactions was the date on which the relevant land transactions completed (as there is no question of s44 of FA 2003 operating so as to treat the date of substantial performance as being the effective date). The chargeable interest that AKA acquired was the chargeable interest as it stood at the very time of completion. That conclusion depends, not on any definition of ‘effective date’ but on an analysis of the nature of the chargeable interest acquired which is required by paragraph 2(2) of Schedule 6B.”
In our view, the relevant points to be taken from [61] and [62] of Ladson Preston are as follows:
Debates about whether the definition of effective date in section 119 specifies the entirety of a day or a particular point in time have no bearing on the availability or otherwise of a particular SDLT relief or treatment, which turns on the nature of the subject matter of the chargeable transaction.
In such a case, the availability or otherwise of a relief or treatment depends on the nature of the chargeable interest acquired (see section 43(6)).
Where, as in this case, the chargeable interest is acquired at completion of the relevant land transaction, the chargeable interest acquired is the chargeable interest that exists at the time of completion.
Whether a particular SDLT relief or treatment applies requires an analysis of the nature of the chargeable interest acquired at completion.
We consider that the approach described by the UT in Ladson Preston and encapsulated in the points above is not restricted to cases where the issue is whether the subject matter of a transaction consists of multiple dwellings. It is relevant whenever the particular SDLT treatment or relief turns on the nature of the subject matter of a chargeable transaction.
We consider that the FTT should have applied that approach when considering whether the paddock was part of the grounds of the house and that, in not doing so, it erred. In considering whether the Property acquired by Mr and Mrs Suterwalla included land that was non-residential, the FTT should have focused its assessment on whether the paddock was part of the grounds of the house at the completion of the purchase of the Property. As the grazing lease in this case did not exist at the time of completion, it follows that it should not have formed part of the analysis of the nature of the chargeable interest acquired at that time.
Our conclusion does not mean that a grant of a grazing lease (or other interest) after completion can never be taken into account. The subsequent use of land may be evidence of its nature or character at the time of completion. For example, the grant of grazing lease by new owners after completion may formalise an informal arrangement between the previous owner and a neighbour which allowed horses to be kept and grazed on the land or be a reinstatement of historic commercial use. As discussed above, however, there was no evidence in this case of any previous use of the paddock to show that it was not part of the grounds. To put it another way, the evidence and the FTT’s findings of fact were consistent with the grazing lease being an entirely new use of the paddock which only commenced after Mr and Mrs Suterwalla had already acquired the chargeable interest on completion.