A utility company may have a wayleave agreement with a landowner for the erection of wires or the laying of pipes across their land. Legislation exists setting out the income tax, corporation tax and capital gains tax treatment of wayleave payments. But can the existence of a wayleave change a property from being residential to non-residential for the purposes of stamp duty land tax (SDLT)? The recent case of Faiers v Revenue and Customs [2023] UKFTT 297 (TC) considered this question.

Why does it matter?

The residential rates of SDLT are much higher than the rates for non-residential and mixed-use property. This has led to many cases testing the definition of residential property – often following a reclaim of SDLT on the basis that the transaction had been misclassified. This is the first case concerning a wayleave.

The facts of the case

Mr Faiers purchased a property on 23 August 2019 and submitted his SDLT return on the basis that the transaction was entirely residential. He then amended his return on 10 March 2020, contending that the transaction should have been classified as mixed-use/non-residential as there was a commercial electricity distribution network on the property operated by Eastern Power Networks (EPN).

The electricity network consists of a single pole that supports two 11kV electric cables that cross the property. The taxpayer argued (and HMRC did not dispute) that although the cables occupy a small amount of airspace, their presence creates an aerial safety zone that takes up 10% of the land.

In the wayleave agreement with EPN, entered into in January 2022, Mr Faiers allows EPN to run an overhead electric line in the current position and erect one pole to support the line. He also covenants not to do anything that is likely to cause damage or interference to the power network.

Mr Faiers has young children. The existence of the lines means that he does not allow them to do any of the following when playing in the garden:

• fly a kite;
• use water pistols;
• have a trampoline or bouncy castle (near the electricity lines);
• camp (near the electricity lines);
• play tennis or badminton (near the electricity lines).

Furthermore, he claimed that he could not burn rubbish, erect a tent or marquee, use a sprinkler near the lines, or build a barn and plant trees in certain locations. Mr Faiers keeps highland cattle. However, as the cattle like to rub their bottoms against poles and such like, he cannot let them go near the pole as it looks worse for wear and it would not be safe.

The arguments

The taxpayer asserted that these restrictions meant that the land affected was not available to him and his family as occupants of the dwelling to “use as they wish”. In addition, the apparatus forms part of the commercial business of EPN and Mr Faiers received a commercial payment for the use of the land by EPN.

HMRC argued that although operating a power network is a commercial activity, the land below the lines was maintained as a garden. The commercial activity did not prevent the whole of the property from being residential for the purposes of SDLT.

Case law

The tribunal reviewed various cases that had considered grounds surrounding a dwelling. 

The cases of Hyman and Goodfellow, appealed as far as the Court of Appeal, concerned whether there was an objective quantitative limit on the extent of the garden or grounds that fall within the definition of residential property. At the First-tier Tribunal (FTT) in Hyman, the judge commented that: “Land would not constitute grounds to the extent that it is used for a separate, eg commercial purpose. It would not then be occupied with the residence, but would be the premises on which a business is conducted.” At the Court of Appeal, one situation put to the judges was whether an electricity sub-station could form part of the garden or grounds, but the judges would not be drawn on devising a test for the various examples given.

Gary Withers v HMRC was an FTT decision relating to the purchase of a dwelling-house surrounded by approximately 39 acres of gardens, fields and woodlands. The FTT held that the grazing land and woodlands did not constitute gardens and grounds, placing importance on the fact that there were grazing and Woodland Trust agreements in place at the time purchase.

James and Charlotte Averdieck v HMRC concerned whether an access road to a farm crossing the taxpayer’s property prevented the land from being used and enjoyed as residential property. The FTT concluded that the land was still entirely residential on the basis that the existence of burdensome obligations does not make the grounds any the less the grounds of the residence.

The decision

The FTT concluded in the Faiers case that the electricity distribution network does not prevent all of the land constituting the grounds of the dwelling. This was on the basis that:

• the land in question is contiguous with and surrounds the dwelling;
• the existence of a commercial operation carried on by a third party in itself is not determinative;
• the level of physical intrusion is not extensive; and
• while safety issues restrict activities that can be carried on close to the cables, they do not prevent the landowner from doing anything at all under the cables – there was even a children’s play structure in relatively close proximity to the wires and pole.

Lindsey Wicks, Technical Editor, ICAEW