Published March 7th 2023

Stamp Duty Land Tax: The latest cases on mixed use & "garden and grounds"

When buying land and property in England, Stamp Duty Land Tax (SDLT) may be payable on the purchase depending on numerous factors, including the type of property in question, the amount of “consideration” (ie money or other benefit) being provided, and the nature of the transaction taking place. A separate Land Transaction Tax regime applies when purchasing land and property in Wales, which is not covered in this article.

Different rates of SDLT will apply depending on whether the property is classed as a “residential”, “non-residential” or “mixed-use” property. Higher rates apply to residential transactions, than to non-residential/mixed use transactions. Calculating the SDLT payable on purchases of anything other than wholly residential (e.g. a terraced house with a small garden) or wholly commercial property (e.g. an office block with parking) has become complex.

Thresholds

The current nil-rate threshold for residential property is £250,000 and £150,000 for non-residential and mixed-use property. Any consideration provided over and above those thresholds will be liable to tax. The nil-rate thresholds are subject to change, as we have seen recently with the temporary increase to the residential threshold (which has been increased from £125,000 between 23 September 2022 to 31 March 2025) in an attempt by the Government to support the housing market.

Classification of property

Purchasers of houses with land (e.g. paddocks or woodland), country houses, landed estates etc. will need to consider carefully how the property is classified in order to calculate and pay the correct amount of SDLT, and to avoid challenges by HMRC following completion of the purchase.

Even where there are fields, paddocks or woodland included within the extent of the property, if those areas are deemed to form part of the “garden and grounds” of a residential dwelling, they are likely to be classed as “residential” in nature, so the residential rates will apply. There is no definition of “garden and grounds” in the relevant legislation, however HMRC guidance states that the dictionary definitions of garden and grounds (along with judicial authority in non-SDLT contexts) may be helpful in determining what is classed as “garden and grounds”- for a further explanation of this term see Stamp Duty Land Tax and mixed use premises: “grounds with house for sale?”

There have been two recent cases in the First-tier Tax Tribunal in which HMRC has challenged the classification of the property and therefore the amount of tax payable. These highlight the need for careful consideration of all of the circumstances of a transaction, looking beyond the figures involved and to establish some level of commerciality for the land to be classed as non-residential.

Woodlands and grazing land – not classed as “grounds” of a dwelling

The first case (Withers v HMRC [2-22] UKFTT 433 (TC)) deals with woodlands and grazing land which the First-tier Tribunal has ruled did not form part of the “grounds” of a dwelling for SDLT purposes and which were therefore able to attract the lower “mixed-use” rates in respect of those non-residential parts of the property being purchased.

The tribunal held in an earlier case (Myles-Till v HMRC [2020] UKFTT 0127) that mere common ownership of land with a dwelling was not sufficient to make the land residential, noting in the Withers case that the “self-standing” function of the grazing land was commercial, and the woodland was for improving the environment and rewilding. As these were non-residential uses, neither of these areas were deemed to form part of the garden or grounds of the property.

It is worth noting that both the woodlands and grazing land were subject to agreements relating to their use – the woodland had been designated for ecological purposes and the grazing land was subject to a grazing licence. However, this does not mean that every area of woodland or grazing will benefit from the non-residential rates, as it will depend on the circumstances in each transaction.

The Tribunal in the Withers case differentiated between there being a few grazing horses (as has been seen in other recent challenges) and grazing a flock of sheep. Where there is no evidence of a grazing and/or a woodland agreement (or Farm Business Tenancy for example), it will be very difficult to argue that the arrangement is a commercial one that would allow for the non-residential rates to be applied.

This is the first case in which evidence of separate non-residential use has been sufficient for the land to be classed as non-residential by HMRC. Numerous similar arguments have been raised by taxpayers, which have until now been unsuccessful. Whether or not the Withers case marks a turning point for these types of cases remains to be seen.

Public right of way – Not classed as “mixed use” for SDLT

The second case of Averdieck and another v HMRC [2022] UKFTT 374 (TC) concerned a public right of way (a lane) running along the taxpayer’s property to a commercial farm, which the Tribunal held did not render the property mixed-use for SDLT purposes. The public lane was deemed to form part of the grounds of the dwelling.

In this case, the purchasers had initially paid SDLT on the basis of the residential rates, however they later amended their SDLT return, indicating that the property should have been classed as mixed-use and therefore subject to the lower non-residential rate of SDLT.

The access lane not only provided access to the property being purchased, it also provided access to five residential homes and a farm beyond. The purchasers argued that this restricted their use and enjoyment of the property, and along with it being used to access a farm (a separate commercial purpose) they felt that the non-residential rates should apply, as it did not constitute the grounds of their residence.

The Tribunal accepted that the neighbouring farming business was a commercial operation, however the commercial operation was not being conducted on the access lane. The land therefore did not constitute a commercial use of the purchaser’s property, and it therefore formed part of the grounds of the property and the residential rates applied.

Conclusion

There have been many recent cases, where purchasers have tried to argue that their property is mixed-use, to benefit from the lower rates of SDLT. More often than not, these cases have been unsuccessful, and the purchasers have had to pay the higher residential rates, because the land with their dwelling is classed as falling within the “garden and grounds” of the dwelling (as was seen in the Averdieck case). However, the Withers case highlights that where there are agreements in respect of land being purchased with a dwelling, with some element of commerciality to them, HMRC may accept that the lower non-residential rates apply.

As a practical point, the SDLT return must be submitted to HMRC and the SDLT must be paid within 14 days of completion. The SDLT position should therefore be considered at the start of a transaction, so that the correct amount can be calculated, and the costs implications can be considered.