When it comes to SDLT, different rates can apply depending on the use of the property and how many properties you own. So, what does the law say in relation to this, and which cases are of particular significance for SDLT?
The difference between the non-residential/mixed-use and residential rates of SDLT can be significant for purchasers, as each carries different tax implications. A mixed-use property is one that has both residential and non-residential elements, such as a shop with a flat above or a residential property with agricultural land.
The highest SDLT rate for non-residential/mixed-use properties is 5% compared with a rate of up to 17% for non-UK resident buyers purchasing a second home.
Whether a property is classed as being non-residential/mixed-use or residential is therefore an important distinction.
The question of ‘garden or grounds’ most commonly arises in relation to open land when it is sold together with residential property. According to the SDLT rules, a buyer would pay residential SDLT rates on land if it is sold as part of the ‘garden or grounds’ of the property, for example, a house or cottage with adjoining fields.
The term ‘garden or grounds’ of a residential property was given a wide meaning in the leading case of Hyman v HMRC (2019). In this case, the property comprised a house, together with ‘3.5 acres of stunning gardens’, a 17th Century Barn, and a bridleway. Despite the taxpayer’s claim that the barn was a mere storeroom, that the large field was used for agriculture and that the public walked along the bridleway, the tribunal held that the barn and bridleway were part of the grounds of the property, and therefore the purchase attracted a higher rate of SDLT.
More recently, in the case of Gibson v HMRC (2023), a field that was always historically used as farmland was considered by the tribunal to be ‘grounds’ for SDLT purposes on the basis that the land was not being used for grazing at the time of purchase. The land was being sold by a developer who had secured planning permission for a change of use from agricultural to residential curtilage prior to the sale. This indicates that the interpretation of the term ‘garden or grounds’ has become even wider. In this case, the tribunal held that the test was not whether the land in question is not required for the reasonable enjoyment of the property. Instead, the taxpayer must demonstrate that the land does not constitute ‘garden or grounds’ of the property at all.
The need to demonstrate a proper commercial agreement (perhaps highlighting the importance of formal supply contracts) was also emphasised in Gibson. The tribunal did not accept that informal grazing by farmers in exchange for joints of lamb constituted a commercial agreement and reinforced the view that the paddock did not have a self-standing function. The paddock was held to be part of the grounds of the property.
The outcome of Hyman and Gibson, together with a string of victories for HMRC in similar cases therefore represents much more of a challenge for purchasers seeking to secure lower rates of SDLT in the future.
As the particulars of each case are unique and complex, it is always important to speak with a solicitor to obtain guidance on matters concerning SDLT.
If you would like legal advice regarding SDLT or a more general property matter, please contact Louisa Beacon.Contact us
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