Senior solicitor Julian Spence, in our Commercial Property team, looks at situations where is can be unclear if Stamp Duty Land Tax (SDLT) is payable at the residential or commercial rate.
The recent case of Hyman v HMRC  UKFTT469 (TC) concerned land forming part of a farmhouse and whether the purchase should have been taxed for Stamp Duty Land Tax (SDLT) at the residential rate or commercial rate.
Mr and Mrs Hyman bought the farmhouse with 3.5 acres of land. The property comprised two gardens, a duck pond, a barn and a meadow. They paid SDLT at the residential rate when they bought it. They then sought to reclaim what they claimed to be an overpayment of SDLT on the ground that the property should have been classed as mixed use, and that they therefore should have paid SDLT at the lower commercial rate.
They claimed that the barn, meadow and bridleway were separated by hedges, and that the bridleway was used by the public and could not therefore be used for recreation or private purposes, that the barn was a non-residential building and that the meadow and barn were not integral parts of the property.
The First Tier Property Tribunal found against Mr and Mrs Hyman and found that they had correctly paid SDLT at the residential rate and there was therefore no refund due to them from HMRC. The FTT found that the SDLT legislation does not define “garden or grounds” so must take their ordinary meaning. They said that HMRC’s SDLT manual does not give any guidance although there is some guidance in the CGT manual. They said the brochure set out that the property was marketed to buyers as an integral whole. Grounds has and is intended to have a wide meaning and its ordinary meaning is land attached or surrounding a house which is occupied with the house or available to the owners of the house to use. The grounds do not need to be used for any particular purpose. It is not relevant that the grounds are separated by hedges or fences and it does not matter that there is a right of way over the grounds.
In most cases, it is clear cut whether a transaction is commercial and therefore subject to SDLT at the commercial rate, or residential and therefore subject to SDLT at the residential rate. In some cases it is not always clear and in some cases there can be an element of doubt which regime applies. Where it is not immediately apparent, a prospective purchaser should carefully consider the extent of the land they intend to purchase, what the purchaser intends to use it for consider which SDLT regime will apply to the transaction.
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This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.