The distinction between fixtures (which form part of the land) and chattels (which do not) can have significant consequences for stamp duty land tax (‘SDLT’) purposes. In Orsman v HMRC  UKFTT 227 (TC) the First-tier Tribunal (Tax Chamber) had to consider this distinction and found in favour of Her Majesty’s Revenue and Customs (‘HMRC’), but perhaps of more general interest to taxpayers is the tribunal’s conclusions in relation to whether during an appeal hearing HMRC can raise and rely on additional grounds to defend their closure notice not falling within the conclusions stated in the closure notice.
Ms Orsman purchased a property in 2010 and paid £250,000 for the house itself and £8,000 for the chattels, of which there was a large number as the seller was downsizing and wanted to leave various items behind. This included £800 which was paid for ‘built-in fitted units with worktop’ in the garage. The units were not fixed to the walls of the garage but were attached to the worktop, which was itself fixed on battens mounted on the wall.
HMRC argued that these formed part of the land, and in the closure notice they stated that the relevant consideration for the property was £250,800 and therefore SDLT of £7,524 was due (3% x £250,800), rather than £2,500 (1% x £250,000).
HMRC sought to raise an additional argument in their statement of case which had not been included in the closure notice. This was that certain light fittings in the house were also part of the land and therefore the amount paid in respect of the light fittings should also form part of the relevant consideration.
What information should be included in a closure notice?
This important question was considered by the Supreme Court in Tower MCashback LLP 1 v Revenue and Customs Commissioners  UKSC 19.
Tower MCashback concerned claims for first year allowances under section 45 Capital Allowances Act 2001 (‘CAA’), in respect of expenditure to acquire the rights to certain computer software under licence agreements.
HMRC had commenced an enquiry and focused their attention on section 45(4) CAA. In due course, HMRC issued a closure notice refusing the claim for relief. The taxpayer appealed against the closure notice.
During the course of the appeal hearing before the Special Commissioners (now the tribunal), HMRC abandoned their section 45(4) argument. However, the Special Commissioners permitted HMRC to argue that the taxpayer did not qualify for capital allowances in respect of £22.5 million because it had not ‘incurred’ that expenditure (the £22.5 million was funded by interest free, non-recourse loans). This argument was not included on the closure notice. The taxpayer appealed and the case ultimately reached the Supreme Court which, in respect of this issue, held that:
- the closure notice completes and states HMRC’s conclusions as to the subject matter of the enquiry;
- the appeal against the conclusions is confined to the subject mater of the enquiry and of the conclusions stated in the closure notice;
- the jurisdiction of the tribunal is not, however, limited to the issue whether the reason for the conclusion is correct;
- accordingly, the tribunal may hear any legal argument relevant to the subject matter and any evidence in support of such legal argument, subject only to its obligation to ensure a fair hearing.
In Ms Orsman’s case, HMRC had not previously indicated (in the closure notice or during the course of the enquiry) that they intended to challenge the status of the light fittings. The tribunal therefore held that whilst HMRC were free to raise additional legal arguments in relation to the work-tops, they were not permitted to broaden the scope of their attack on Ms Orsman’s SDLT return by reference to the light fittings. The tribunal said:
‘ … the subject matter of the appeal is clear. It is that by reason of the acquisition of the units and worktop as part of the house the consideration of £258,000 should be apportioned as to £250,800 to land, and the rest to chattels. Whilst additional legal arguments could permissibly be raised in relation to those conclusions … the factual focus of HMRC’s argument was on the worktops and the units only. It would … not be fair or just to permit a broadening of the attack on the SDLT return by reference to matters other than the worktop and units.‘
Although the tribunal ultimately agreed with HMRC in relation to the worktops and held that these were part of the land and consequently the relevant consideration for the property was £250,800, it is reassuring to note that the tribunal will apply Tower MCashback in order to prevent HMRC from broadening an appeal beyond the subject matter of the closure notice.
The tribunal’s willingness to apply the principle in Tower MCashback is an important safeguard for taxpayers and one which should not be ignored when conducting an appeal before the tribunal.