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SDLT: Garden or grounds

Posted on 1 June 2021

The difference between the non-residential/mixed use and residential rates of SDLT are significant, with a top rate of 5% for non-residential/mixed-use properties versus up to 17% for a non-UK resident person buying a second home. Whether a property is residential or mixed use can therefore be a high stakes question.

The relevant definition of 'residential property' extends to the "garden or grounds" of a dwelling. There have been series of recent HMRC victories at the Tax Tribunal in this area attributing a wide meaning to this term, notably in Hyman, Pensfold and Goodfellow.

In Hyman, there were 3.5 acres surrounding the house, including a large barn, bridleway and meadowland, all of which was held to constitute part of the "garden or grounds" of the house. Similarly, in Goodfellow, it was found that 4.5 acres of land, including a stable yard and paddocks, were also fully residential. The fact that the seller used a room above the garage as an office, and that there was an informal grazing licence over a paddock, did not change the position. Pensfold was held similarly, albeit the size of the land was much more significant at 27 acres. 

Each of these cases were appealed to the Upper Tribunal jointly.  The taxpayers argued that HMRC's guidance at the time provided that only the land needed for the "reasonable enjoyment" of the dwelling was to be treated as residential property. However, the Upper Tribunal was happy to conclude that this guidance had no legal status and was wrong, as it did not reflect what the legislation said (which does not contain this qualification). New guidance on this point (without reference to "reasonable enjoyment") was quietly introduced by HMRC in 2019.

These cases are likely to increase HMRC's confidence in challenging 'mixed use' SDLT filing positions for high value residential properties. In situations where such properties are set in an extensive plot but with no separate proper commercial use of any part of the land, any mixed use arguments are at risk of challenge. Each case will of course turn on its own facts and specific advice is recommended.  Looking to the future, we wonder how long it might be before the Government legislates to require buyers to apportion consideration between the residential and non-residential elements of a property (paying SDLT at different rates on these elements) – although it is not clear this is a legislative priority.

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