In 2019, we reported on a first-tier tribunal (FTT) case which tested HMRC’s apparent change in approach for mixed use stamp duty land tax (SDLT) claims. This case was subsequently appealed, and the latest decision has now been published.
As a recap, purchases of residential properties with extensive accompanying land had previously been accepted as mixed-use properties and hence subject to lower SDLT rates. HMRC had, however, started to challenge this position and only accepted such claims where it could be demonstrated that a commercial return had been received for use of part of the grounds.
In the case of Mr D and Mrs S Hyman v HMRC, the Hymans had purchased a property with over 3.5 acres of land, including a barn, a meadow and a public bridleway. The couple originally paid SDLT on the basis that the property was residential, but subsequently made a repayment claim, assessing that the property purchase was of mixed-use, which HMRC rejected.
The FTT of Mr D and Mrs S Hyman v HMRC, found in favour of HMRC on the basis that, as the SDLT legislation did not define ‘garden or grounds’, its ordinary meaning should be used. It was determined that a wide definition should apply, to include any land attached to or surrounding a house which is available for the owners to use as they wish. For capital gains tax purposes, there is a concept of ‘reasonable enjoyment’ but HMRC advise that this does not apply to SDLT.
More recently, the case was heard at the upper-tier tribunal, again finding in favour of HMRC. Along with the Hymans, a joint appeal was made by two other, unrelated parties (Pensfold and Goodfellow), all arguing that land can only form part of the ‘garden or grounds’ of the house where it is needed for the ‘reasonable enjoyment’ of the house. The upper tribunal agreed with the prior ruling by the FTT that there was no wording in the SDLT legislation which suggested that the land should be needed for the reasonable enjoyment of the house in order to be considered residential property.
As mentioned above, all hope is not lost as, where it can be demonstrated that part of the land is used for a separate commercial purpose, this would not constitute grounds and hence a mixed-use claim could be made.
In the case of Pensfold, it had originally been argued that the land had been subject to a grazing agreement, which at first glance would appear to be a reasonable basis for a mixed-use claim. However, this was dismissed by the court on the basis that there was no formal agreement in place, the land was not being grazed at the time of purchase and the marketing brochure/purchase contract made no mention of any grazing rights. Further, in the case of Goodfellow, only a peppercorn rent of £1 per month had been charged for a neighbour to graze their horses and it was again, therefore, determined that there was no commercial agreement in place.
This demonstrates the importance of ensuring that there is written evidence (e.g. contracts/agreements) to support any ongoing arrangements in place in respect of the land, as well as the commerciality of those arrangements to successfully argue a mixed-use SDLT claim.