The case of Sangeeta Modha v. HMRC revolves around an appeal brought by Ms Sangeeta Modha (the Appellant) against a decision by HM Revenue & Customs (HMRC) regarding Stamp Duty Land Tax (SDLT) liability. The core issue was whether an eight-acre field adjacent to a residential property known as Firs Farm should be considered a residential or mixed-use property.
Background
On 12 April 2018, Ms Modha acquired Firs Farm for £1,440,000. The property included a five-bedroom house with landscaped gardens, garages, a manage, a paddock, and the eight-acre field in question.
The Appellant had initially paid SDLT amounting to £130,950 considering purchase of a residential property as a second property per the rates provided in Table A of section 55 as varied by Schedule 4ZA Finance Act 2003 (FA03).
Subsequently, the Appellant claimed a refund of £69,450, arguing that the property should be considered Mixed Use Property (dwelling and non-residential land) under “Table B,” leading to a lower SDLT liability. HMRC rejected this claim, leading to the appeal.
Legal Framework
SDLT is levied on land transactions, as defined in section 43 of FA03, involving the acquisition of a chargeable interest in any land in England.
The applicable SDLT rate depends on whether the interest acquired constitutes a residential property or not. Section 116 FA03 defines residential property as:
- A building that is used or suitable for use as a dwelling or is in the process of being constructed or adapted for such use and
- Land that is or forms part of the garden or grounds of a building within paragraph (a) (including any building or structure on such land), or
- An interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b)
The Dispute and the Evaluation Test
The central dispute in this case was whether the eight-acre field should be considered part of the "grounds of a dwelling" under section 116 of FA03.
The court used an evaluative approach to determine this issue, as established in the Court of Appeal case of Hyman and Goodfellow v. HMRC [2022] EWCA Civ 185. This approach involves balancing various factors specific to each case.
Key factors included:
1. Layout and Proximity
The field was contiguous with the garden, paddock, and manage, located at the bottom of the property, but not directly visible from the dwelling.
2. Extent
The entire plot was approximately ten acres, which, while significant, was not an uncommon size for properties in rural locations.
3. Legal Factors/Constraints
There were no legal restrictions that prevented the Appellant from using the field in conjunction with the dwelling.
Factual Findings
The court made several crucial factual findings:
- The field was contiguous with the residential property but was not directly visible from the house due to a significant drop in terrain.
- The field's past use was in dispute, with evidence suggesting that it may not have been used as a paddock for horses by the previous owners.
- There was an arrangement with a neighbour regarding the maintenance of the field, but it was not considered a commercial use.
- A grazing agreement existed but was not considered a commercial use on the effective date of the transaction due to timing and contractual specifics.
- There was no conclusive evidence that the field had planning restrictions limiting its use to agricultural purposes.
Determination
Considering the factors outlined in the Stamp Duty Land Tax manual (layout, proximity, extent, legal factors), the court concluded that the field was part of the "grounds of a dwelling." Key reasons for this determination were:
- The field was contiguous with the property, even though it was not visible from the house.
- The field's extent, while substantial, was not excessive for a rural property.
- There were no legal constraints that prevented its use with the dwelling.
- The lack of any commercial use or function unconnected with the dwelling supported its classification as part of the grounds.
As a result, SDLT was payable at the rates specified in "Table A" of section 55 of FA03, and the appeal was dismissed.
To know more about SDLT rates read our article on “Stamp Duty Rates in the UK”. Educate yourself and make informed decisions.
Conclusion
The Sangeeta Modha v. HM Revenue & Customs case illustrates the importance of carefully evaluating the specific circumstances of each property transaction when determining SDLT liability.
The court's application of an evaluative approach, as established in previous cases, demonstrates the need to consider factors like layout, proximity, extent, and legal constraints in deciding whether land adjacent to a dwelling qualifies as part of its "grounds."
This decision clarifies the criteria for SDLT classification, providing guidance for future cases involving mixed-use properties and their associated tax liabilities.
