The How Development 1 Ltd v The Commissioners for HMRC

Whether land forms part of the “grounds” of a dwelling for Finance Act 2003 purposes is an evaluative question. The tribunal must weigh all relevant facts and circumstances. No minimum requirement of physical accessibility, active use, residential use or reasonable enjoyment applies. Accessibility, legal restrictions, ownership, location, privacy, security and commercial use may be relevant factors, but none is necessarily decisive.

An appellate tribunal should not interfere with the fact-finding tribunal’s assessment of weight unless the decision involves an error of law or no reasonable tribunal could have reached it.

The appellant acquired a country house, ancillary buildings, gardens and approximately two acres of woodland. It argued that the woodland was non-residential property, so that a lower rate of SDLT applied. The First-tier Tribunal found that the woodland formed part of the property’s grounds and dismissed the appeal.

The appellant challenged that conclusion, arguing that inaccessible or non-residential land could not be grounds, and alleging errors concerning the weighting of factors, procedural fairness, delay and the treatment of oral evidence. The central issues were the proper approach to “grounds” under section 116(1)(b) of the Finance Act 2003, and the appropriate disposal of the appeal if the FTT had erred in law.

1. Meaning of “grounds”. The words in section 116(1)(b) of the Finance Act 2003 are ordinary English words. Following Hyman v HMRC, the correct approach is to weigh all relevant factors in an evaluative exercise. It is unnecessary and inappropriate to introduce a preliminary test identifying land inherently incapable of being grounds.
2. Physical accessibility is relevant but not determinative. Land may form part of the grounds although it is difficult or impossible to traverse from the dwelling. Nor must grounds be used actively, ornamentally, recreationally or for a distinct residential purpose. Privacy and security may constitute benefits to the dwelling.
3. The existence of tree preservation orders or other restrictions does not prevent land from being grounds. Commercial use is a relevant factor, but the absence of commercial or agricultural use is not decisive. Questions of weight ordinarily belong to the FTT and are not matters for appellate re-evaluation.
4. The FTT erred in law by taking into account the appellant’s initial SDLT return, if it treated that return as a factor bearing on the statutory classification. It also acted procedurally unfairly by referring to planning consent and rateable valuation without giving the appellant an opportunity to address those matters.
5. The FTT’s failure to discuss Mr Warren’s oral evidence, coupled with the nearly one-year delay in issuing its decision and the absence of preserved hearing notes, meant that the decision was not safe. The FTT also gave inadequate reasons for its conclusion concerning accessibility, although that deficiency was cured by the full argument before the Upper Tribunal.
6. The errors were material. The FTT’s decision was set aside under section 12(2)(a) of the Tribunals, Courts and Enforcement Act 2007. The Upper Tribunal re-made the decision rather than remitting it, taking the disputed oral evidence in the appellant’s favour where appropriate.
7. On the material factors, including the woodland’s ownership, proximity, privacy and security benefits, lack of commercial use, density and relative inaccessibility, the woodland formed part of the grounds under section 116(1)(b). The appeal against HMRC’s closure notice was dismissed.

• First-tier Tribunal (Tax Chamber): The FTT dismissed the appellant’s appeal and decided that the woodland formed part of the residential property under section 116 of the Finance Act 2003.
• Upper Tribunal (Tax and Chancery Chamber): The FTT decision was set aside for material errors of law and procedural unfairness. The Upper Tribunal re-made the decision and dismissed the appeal against HMRC’s closure notice.