The recent case of Jonathan Ralph v. The Commissioners for Her Majesty’s Revenue and Customs raises pivotal questions surrounding the eligibility of Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax (SDLT) on the acquisition of a property.
This analysis focuses on the post-alteration state of the Annexe, the essential elements that determine its classification as a single dwelling and the adaptive processes crucial for MDR eligibility.
The tribunal decided in favour of HMRC concluding that the Annexe was not suitable for use as a dwelling.
The Facts
Jonathan Ralph, a wealthy South African businessman, sought to relocate his family to Southeast England from South Africa. In the pursuit of a suitable property, he encountered challenges due to Covid restrictions, leading him to conduct online searches.
Eventually, he identified a property known as Stoneybrook in Ashbourne, Derbyshire, comprising a substantial house and a detached garage with rooms above, referred to as “the Annexe.”
Ralph’s SDLT return claimed MDR, prompting an HMRC enquiry. The dispute escalated, leading to a closure notice issued by HMRC, contesting the eligibility of MDR, and increasing the SDLT payable.
Ralph’s subsequent appeal to HMRC and the statutory review process proved unsuccessful, culminating in the appeal to the Tribunal.
The Property in Question
Stoneybrook, a sprawling estate near Ashbourne, features a main house and the Annexe. The Annexe, initially named “the George Lodge Cottage,” had a ground floor housing three garages, with an external staircase leading to the first floor.
The first floor comprised a single room with bathroom facilities and limited kitchen provisions, including a microwave, kettle, toaster, fridge, and a server table. Before alterations, it lacked the necessary high-voltage connections for a cooker or oven.
The Annexe Before and After Alterations
The Annexe, described ambiguously as “the gym” or “the Cottage,” became a focal point in the case. Ralph’s intention to use the Annexe as temporary accommodation during renovations to the main house prompted pre-completion alterations.
An interior designer was engaged, and kitchen units and appliances were ordered. The alterations, initiated after completion due to unforeseen circumstances, included the installation of a kitchen and other domestic amenities.
Upon completion of the alterations in December 2020, the Annexe was equipped with central heating, broadband, electricity, gas, and water. Notably, it did not have separate Council Tax registration.
Key Legal Issues
The crux of the matter revolves around whether the Annexe qualifies as a dwelling for Multiple Dwellings Relief (MDR) purposes.
Central to this determination are the facilities for food preparation and whether the property was in the process of being adapted for use as a dwelling.
Appellant and HMRC Contentions
The Appellant, represented by Mr. Cannon, contends that the Annexe was suitable for use as a single dwelling at completion. Relying on the Upper Tribunal’s decision in Fiander and Brower v HMRC, Mr. Cannon argues that the term “suitable” implies current fitness, and improvements made post-completion should be considered as renovations.
Notably, the Appellant asserts that modern alternatives to traditional cookers, societal changes influencing cooking habits, and the property’s past use support its suitability. Additionally, the absence of certain features like a sink is deemed inconsequential.
In contrast, HMRC, represented by Mr. Jones, argues that the Annexe lacked essential kitchen facilities and did not possess the characteristics of a separate, self-contained living unit. The absence of a separate utility meter, postal address, Land Registry title, and Council Tax billing are highlighted as indicators of unsuitability.
Tribunal Analysis
The Tribunal’s deliberations in the Jonathan Ralph Stamp Duty Land Tax (SDLT) appeal reveal a nuanced exploration of whether the Annexe qualifies as a single dwelling, considering both its post-alteration state and the application of relevant legislation.
The key points can be distilled as follows:
Suitability Test
The Tribunal rejects the attempt to extend observations on properties in disrepair to include improvement works, emphasising the distinction. The lifestyle choices of the Appellant’s family, such as using a convection microwave and sending laundry out, are deemed irrelevant to the objective suitability test.
The Tribunal identifies significant features supporting suitability, including the Annexe’s structural layout, bathroom facilities, and utility connections. However, the absence of kitchen facilities, high-power electrical connections, and separate utility meters weighs against suitability.
The lack of certain amenities, such as a sink in the main room, contributes to the conclusion that the Annexe was not suitable for use as a dwelling.
Overall, the Tribunal finds that the Annexe did not meet the suitability requirements as of completion.
Adaptation Test
The Appellant argues that the Annexe was “in the process of being adapted” at completion, relying on preparatory works undertaken before completion.
The Tribunal, citing Ladson Preston, emphasises that the test requires a physical manifestation or the commencement of physical works as of the effective date.
The delays caused by Covid, while acknowledged as valid reasons for postponement, do not alter the determination based on the facts as they are.
Decision by Tribunal
The Tribunal concludes that the Annexe is neither suitable for use as a single dwelling nor in the process of being adapted for such use.
Consequently, the purchase of the Property does not qualify for Multiple Dwellings Relief under Schedule 6B Finance Act 2003.
Conclusion
This decision underscores the meticulous evaluation required in determining the eligibility for SDLT relief, emphasising the objective perspective and the physical state of the property at the effective date.
The case sets a precedent for similar scenarios where the suitability of a property for use as a dwelling is contingent on a comprehensive assessment of its features and amenities.
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