Stamp Duty Land Tax: "Mixed use premises" under the spotlight again
The issue of stamp duty land tax ("SDLT") and mixed use premises has been considered recently by the Upper Tribunal on the appeal of three cases.
In our article on 22 January 2020 we covered the First Tier Tax Tribunal decision in Hyman v HMRC (2019) Stamp Duty Land Tax: HMRC tightens "garden or grounds" loophole.
In that case Mr and Mrs Hyman unsuccessfully argued that a property they had purchase qualified for the lower "mixed use" rate of SDLT. This was upon the basis that the physical separation (by distance and hedges) of a barn, meadow and bridleway evidenced that they were independent of the dwelling's "gardens and grounds", and accordingly there was a distinct non-residential element, meaning the property was in mixed use.
Appeal of 3 cases
Mr and Mrs Hyman appealed to the Upper Tribunal, and were joined by two other appellants from the First Tier, Dr and Mrs Goodfellow and a company called Pensfold.
The Hymans' property was a house and barn with 3.5 acres, and a barn; the Goodfellow property was a house and stables with home office and 4.5 acres; and the Pensfold property was a house with 27 acres.
Legislation & guidance
We have stated the law in this area before, see Stamp Duty Land Tax and mixed use premises: "grounds with house for sale?"
In short, provided that it can be argued that an element of a property sold is not "residential", then the lower "mixed use" rate of SDLT will apply. The definition of residential property includes land which is "garden or grounds" of the residential element.
SDLT enthusiasts may recall that in 2019 HMRC withdrew guidance which indicated a more restrictive interpretation of the words "garden or grounds", and instead introduced broader guidance which would catch more substantial properties with large grounds.
The pre-2019 guidance was that the garden or grounds must be needed for the reasonable enjoyment of the house. The current guidance is drafted upon the basis that “garden” and “grounds” are ordinary English words and whether a particular area of land came within these words is a matter of fact in each case, taking account of a number of factors and considerations.
The Appellants' appeals were pursued upon the basis that the heritage of the phrasing used in the Finance Act 2003 was from statutes which had been defined, and understood, to follow the pre-2019 guidance. Effectively a test of utility, if the garden and grounds were not required for the enjoyment of the residential element, then they were not residential.
Upper Tribunal findings
The Upper Tribunal considered this but were not of the view that the arguments relying upon the heritage of the wording were persuasive, and preferred the arguments of HMRC.
The Upper Tribunal also expressly approved the current, broader HMRC guidance.
The Upper Tribunal did not review the factual analysis of the First Tier Tribunal as that was not part of the Appellants' appeals.
Accordingly the three First Tier decisions stand, and the current guidance of HMRC is approved.
This means that purchasers of substantial properties with substantial grounds are likely to continue to be subject to considerable scrutiny where they seek to argue that the mixed use rate of tax applies. Undoubtedly, the more persuasive cases are those where there is a much more pronounced non-residential element, such as business premises, or very commercially farmed agricultural land.