Mixed-use success

20 July 2023

Stamp duty land tax (SDLT) is charged on land transactions in England. Higher rates apply where the property consists “entirely” of residential property, and lower rates are charged if the property “consists of or includes” land that is not residential property. In other words, any non-residential land in the property will result in a lower rate of SDLT applying.

Therefore, being able to identify whether land is residential or not is critical to identifying the correct SDLT rate. In simple terms, residential property is a building used or suitable for use as a dwelling, as well as land that is or forms part of the garden or grounds of such a building. Anything else is classed as non-residential property.

How is it possible to show that land is not and does not form part of the garden or grounds of a house, such that it is not residential? 

The taxpayer in Suterwalla v HMRC [2023] UKFTT 450 (TC) broke HMRC’s strong record in recent SDLT cases and was successful on the following facts in claiming mixed use.

  • The property consisted of a dwelling house, garden and tennis court (registered as one title with the Land Registry) and an adjoining paddock (registered on a separate Land Registry title).
  • The paddock was not visible from the house (blocked from view by a large hedge) with the only access being a small gate. The paddock could be independently accessed by a bridleway.
  • The sales brochure of the property referred to the paddock “almost [as] an afterthought”. The tribunal accepted that, had the taxpayer been able to, the taxpayer would not have bought the paddock.
  • On the same day as the property purchase, the taxpayer granted a grazing lease for £1,000 a year to allow another local to graze their horses in the paddock.

In making its decision in favour of the taxpayer, the First-tier Tax Tribunal noted the following points.

  • For land to be or form part of a dwelling, there must be a connection between the land and dwelling. Common ownership is necessary but not sufficient. If the land adjoins the property, this is indicative but not determinative. Here, although the paddock was adjacent to the garden and tennis court, it could not be seen from the house and could be accessed independently. 
  • Other people may have rights over the land without necessarily preventing that land from being considered to be or form part of a dwelling; however, this only applies up to a point. For example, commercial use by a third party under a commercial agreement is clearly non-residential. Here, the tribunal considered that, although the rent payable under the grazing lease was not large, it was more than a peppercorn and had the added advantage of keeping the paddock’s grass in order, meaning that the lease was commercial in nature.
  • A lease entered into at completion can be taken into account when considering the use of the land. This was a departure from a previous FTT decision and authority of the Upper-tier Tribunal was not applied (distinguished because the UT decision focused on a separate SDLT relief). Accordingly, even though the paddock did not have commercial use at the time of completion, the fact that the grazing lease took effect on the effective date of the land transaction was, in the tribunal’s view, sufficient.

Taking all of these facts and points together, the tribunal found that the paddock did not form part of the grounds of the property and, as such, was not residential in nature. The lower rate of SDLT therefore applied to the whole transaction.

It should be noted that, on 30 November 2021, HMRC issued a consultation regarding possible reforms to the SDLT rules. This is because more and more people are looking at ways to reduce their SDLT bills, as rates have increased and there is a growing divergence between residential and non-residential rates. There has been no action yet and HMRC have largely been successful in stopping refund requests, claims for lower rates etc. However, their loss in Suterwalla might trigger HMRC’s concern on this topic once again.