Can a dwelling be subject to non-residential rates of Stamp Duty Land Tax?
Recent cases brought by HMRC concerning SDLT ‘mixed use’ rates has again put the spotlight on this complex area, says Fiona Phillips
The Stamp Duty Land Tax (SDLT) arising on the purchase of a property is calculated using different rates and depends on whether the property is residential or non-residential (i.e. for commercial use). If a purchase contains a mix of residential and non-residential properties, then the whole purchase is subject to the non-residential rate of SDLT.
The highest rate of non-residential SDLT is 5%, whilst residential property could be subject to a top rate of 15%, so it’s important to ensure that the correct SDLT rate is applied.
For the vast majority of purchases it will be clear whether a property is residential or commercial. However, asserting that the purchase of a residential property contains some element of non-residential use means the lower, non-residential rates would apply – with considerable tax saving.
For the purposes of SDLT, residential property is defined as “…a dwelling…and land that is…part of the gardens and grounds of (the dwelling)”. Non-residential property is defined as anything which isn’t residential property. If a purchase includes land which isn’t “gardens or grounds of the dwelling” then, by definition, that land will be non-residential – and hence for SDLT purposes the whole purchase will be subject to the lower rates.
Notable cases
Tax tribunal recently has considered cases where land has been purchased with a dwelling in order to determine whether that land is “grounds or gardens” .
In the case of Faiers v Commissioners for HM Revenue & Customs , Mr Faiers purchased a property comprising a house, gardens, and other land. On part of the land there was an electricity distribution network – a pole which supported various high voltage overhead cables. Mr Faiers’ barrister argued that the presence of the power network presented health and safety concerns and so prevented the part of the land it was situated across from being available for the use and enjoyment of the occupants of the house. Also, the paid to Mr Faiers represented a commercial payment for the use of the land.
Tribunal found that the the land was in fact part of the residential property, as it was not physically separated from the rest of the property, and the existence of the cables and pole did not prevent the Faiers family from accessing the land. The commercial operation (the electricity network) was said not to be determinative in this case. The fact that a third party had rights over part of the land – and therefore impinged on the enjoyment of the land – did not make it in any way less part of the grounds of the dwelling.
The initial charge to SDLT at residential rates was correct.
A couple of months later the case of Suterwalla was heard. Again, the tax tribunal’s decision hinged on whether a paddock included in the purchase was non-residential. The purchaser had treated the purchase as non-residential in their SDLT calculation but HMRC queried this treatment.
The facts of the case are that the paddock was rented out for horse grazing, was separately fenced off from the rest of the property with only one small access gate and could be accessed without going onto the garden property. Also, the paddock was on a separate title from the rest of the property.
Given these facts the tribunal decided that the grazing lease was commercial , and the paddock did not perform any function in relation to the dwelling house . It was therefore not “gardens and grounds” and so the non-residential rates of SDLT were due. The tax saving was £161,250.
The two cases show the subtle differences that need to to be considered when determining whether land is “gardens and grounds” . However it should be noted that tax advisors believe that HMRC will appeal against the Suterwalla decision.