Authors
Taxpayers seeking to pay Stamp Duty Land Tax (SDLT) at the lower non-residential (or ‘mixed-use’) rates is an area of high scrutiny from HMRC. Two recent taxpayer successes could easily have been missed among the litany of HMRC victories. In Suterwalla and Guerlain-Desai, the taxpayers prevailed against HMRC’s contention that their properties were wholly residential.
HMRC v Suterwalla
The Suterwallas bought a substantial property with a paddock, and they paid SDLT at the lower, mixed-use rates. HMRC assessed the property as entirely residential, and the Suterwallas appealed.
On the day of purchase, Mr & Mrs Suterwalla had granted a lease of the paddock to a Ms Pragnell, for one year, at £1,000 rent, for the grazing of two horses for her private use (which was signed just after completion of the purchase). For the First-Tier Tribunal, this constituted commercial use and so the mixed-use SDLT rates applied.
Fairly surprisingly, this July the Upper Tribunal dismissed HMRC’s appeal.
The point in time at which to assess whether the property was wholly residential or not was at completion. The judges agreed with HMRC that, because the lease had been granted immediately after completion, it was wrong that this meant the property was in mixed use at the point of completion. That said, the grant of such a lease can sometimes be relevant, for example where buyers grant leases to document what was previously an unwritten arrangement to evidence existing commercial use.
However, the key issue here was whether the paddock was part of the grounds of the house (and any commercial use of it was one of a number of factors). If it was part of the grounds, then the property was entirely residential. The Upper Tribunal agreed with the taxpayers that the layout of the property meant the paddock was not part of the grounds.
The most persuasive factors were that the paddock:
- had a separate HM Land Registry title
- was not close to the house and not visible from it
- was only accessed from the garden by one small gate
- did not support the dwellinghouse, garden or the tennis court
- did not form an integral part of the property.
Therefore, the Upper Tribunal dismissed HMRC’s appeal.
Guerlain-Desai v HMRC
Ms Guerlain-Desai bought a house with four acres of garden and twelve of mature woodland. HMRC disagreed with her filing for SDLT at mixed-use rates and she appealed to the Tribunal.
The woods were part of a larger area of woodland open to neighbours and the general public. There was no view of the woods from the house because the private garden was screened by fences and hedges. Accordingly, Ms Guerlain-Desai argued it was not part of the grounds, and so not residential.
The Tribunal agreed that the woods provided neither security and privacy, nor a positive function for the house, and were not integral to its grounds, and so the property was not wholly residential.
What next
With the abolition of Multiple Dwellings Relief, we can expect even greater focus on SDLT mixed-use claims. The decisions in Suterwalla and Guerlain-Desai illustrate every property is different and in assessing the residential or non-residential character, HMRC and the court will take a multi-factorial approach to all of the relevant circumstances. No single factor on its own is decisive. The physical attributes and facts on the ground need careful consideration – the physical layout of a property will not necessarily be determinative, as it was in Suterwalla.
But lawyers and agents can help buyers too, by gathering evidence of commercial use and working with sellers’ advisors so that existing commercial use is recorded in leases before completion. Grazing arrangements often haven’t been written down or were documented several years ago and allowed to roll on. Sellers may also be willing to provide a statement setting out that such use has been in place over a period of time and may even be able to provide invoices or evidence of payment.
Should you wish to discuss any of the issues raised in this article, please contact Anthony Reeves and Thomas Mawson.
Authors
Michelmores Property Development Club
The Michelmores Property Development Club (PDC) is a forum for developers and property professionals to connect and share knowledge. The Club is celebrating its 21st anniversary...
Agriculture Roadshow 2025
Michelmores are looking forward to putting on another Agriculture Roadshow, between 3-7 February 2025. Following the success of our tour last year, we are going...
Michelmores Property Awards
Celebrating the best of property, development and construction in the South West The Michelmores Property Awards celebrate the best property, development and construction projects in...