The appellants, Taher and Zahra Sutterwalla, appealed against a SDLT demand issued by HMRC, which totalled £330,750.

On 11 December 2020, the couple bought a property in Harpsden, Oxfordshire with access to an indoor swimming pool, tennis court, pavilion and paddock.

On the same date, the pair granted a grazing lease of the paddock for one year to Ms Pragnell at an annual rent of £1,000.

They then filed an SDLT return for the transaction on the basis that the property was both residential and non-residential mixed-use.

HMRC opened an enquiry into the return on 19 August 2021 and requested information. The appellants’ representatives, Cornerstone Tax, responded and provided information relating to the property on 14 September 2021.

On 8 November 2021, HMRC issued the closure notice amending the SDLT return to charge SDLT at the residential rate.

It increased the SDLT liability on the transaction from the £169,500 self-assessed by the appellant to £330,750 - an increase of £161,250.

HMRC referred to section 43 Finance Act 2003 (FA 2003), which states that a ‘land transaction is defined to be any acquisition of a chargeable interest’. Section 48 defines the chargeable interest as including an estate, interest, right or power in or over land.

In his defence, Sutterwalla referred to a sales brochure from estate agents Knight Frank and Savills, which displayed the view on the back page showing the paddock beyond the tennis court with a ‘hedge dividing the two pieces of land’ and only a small gate giving access to it.

He also confirmed that it was not possible to see the paddock from the house and that he had never used the paddock.

He considered the grazing lease to Ms Pragnell a commercial one as, although the rent of £1,000 per annum was relatively modest, the grazing by her horses meant that he did not have to worry about cutting the grass in the paddock.

HMRC maintained that the property was an ‘impressive seven-bedroom family house’ with an indoor swimming pool, tennis court, pavilion and paddock. They added the paddock formed part of the gardens and grounds of the property.

It argued that the entire property was residential at the time of completion based on the fact that the property was registered in a single folio and it was sold as an equestrian property.

However, these two grounds were shown to be false during the hearing. The tribunal found that nowhere in the sales brochure was the word ‘equestrian’ used and there were no stables or other suitable accommodation for stabling horses, either.

Judge Alastair J Rankin said: ‘I find the HMRC should not have issued the closure notice seeking additional SDLT for the following reasons. The paddock is not visible from the dwelling house nor the gardens, and there is only one small gate access from the gardens to the paddock.

‘In addition, Ms Pragnell was able to access the paddock from the bridle path without having to enter the appellant’s garden and the title to the dwelling house, gardens and tennis court is distinct from the title to the paddock.’

The appeal was allowed.