Mixed-Use Property With Stables Pays Less SDLT

Stamp Duty Land Tax (SDLT) is the tax payable on most property purchases within the UK, and the figures for who needs to pay what are set out very clearly by HMRC. But there are times when specific allowances can be made that reduce the amount of SDLT due, and depending on the circumstances, HMRC may challenge them if it feels they do not comply with the rules.

One instance of this was a case that was decided by the Upper Tribunal, the appeals court for HMRC, in November this year, where the taxman took on Mr and Mrs Suterwalla, who had bought a family home with an adjoining paddock in December 2020. On the same day, but after the purchase had been completed, Mr and Mrs Suterwalla granted a lease to their neighbour for grazing in the paddock.

As a result, the couple filed their SDLT return stating that the property was a mixed-use property, with the residential part of the property being the family home, and the non-residential part being the paddock which was now leased for grazing to their neighbour.

Mixed use status reduced the SDLT due significantly

As the property had been declared by the couple as a mixed-use property, the amount of SDLT fell from £330,750 that would have been due if it was purely residential, to £169,500 due to the combination of residential and non-residential usage.

HMRC subsequently opened an inquiry into the SDLT payment, and it issued a closure under paragraph 23, Schedule 10, Finance Act 2003, increasing the SDLT due in respect of the acquisition of the property from £169,500 back to the full residential SDLT value of £330,750.

Mr and Mrs Suterwalla appealed to the First-Tier Tribunal (FTT) because they felt HMRC was incorrect. Their appeal was upheld by the FTT, but this was then challenged further by HMRC, and the appeal was referred to the Upper Tribunal.

What happened next?

HMRC claimed in its appeal to the Upper Tribunal that the FTT had not taken into account, and should have, the decision in a previous case – Ladson Preston Ltd v HMRC [2022] UKUT 301 (TCC). This had confirmed that the nature of the property when the purchase was completed was relevant to whether the property should be considered to be purely residential, and due to pay the higher SDLT. HMRC also claimed the FTT should not have treated the grazing lease as relevant to whether the entire property at completion was residential. HMRC also disagreed with the FTT’s finding that the taxpayers had established the property was mixed use, and both residential and non-residential in nature.

However, the Upper Tribunal dismissed HMRC’s appeal, as it said the FTT wasn’t obliged to follow the precedent of the Ladson Preston case as that related to multiple dwellings relief rather than mixed use SDLT rates. Also, although the FTT took the grazing lease into account, it didn’t exist at the time of completion, so the Upper Tribunal said the FTT should not have taken that to form part of the SDLT status analysis.

However, with that said, the Upper Tribunal confirmed that the paddock wasn’t residential as it wasn’t on the same title as the house at the Land Registry, it wasn’t close to or visible from the house, the paddock didn’t support the house or form an integral part of the property. Also, it was only accessible via a small gate. So, the Upper Tribunal agreed the lower, mixed-use SDLT rate was the correct one to be applied.

Legal firm RPC, which wrote a detailed analysis of the decision, said on its website: “The UT’s reasoning is helpful in clarifying when a property may be considered mixed-use and so subject to the lower rate of SDLT. Although the nature of the property at the time of completion is relevant when determining whether the mixed use SDLT rates apply, the UT did note that there may be circumstances where a transaction that takes place after completion will evidence the nature of the property at completion.”

If you want more information, you can see the full decision here.

We can help you meet your obligations

SDLT can be complicated if the property you are buying is potentially mixed use or has multiple dwellings. So, if you are unsure what your liabilities might be, then please get in touch and we would be happy to give you the guidance you need.