Mark McLaughlin looks at the significance of a house and land being wholly or only partly residential for stamp duty land tax purposes.
Stamp duty land tax (SDLT) rates and charges can vary widely according to whether the land transaction is residential or non-residential. SDLT applies to land transactions in England and Northern Ireland; separate taxes apply in Scotland and Wales (which are not considered here).
Why does it matter?
Different SDLT rates apply depending on whether the relevant land consists entirely of residential property or consists of or includes land that is non-residential or mixed property (FA 2003, s 55(1B)). For example, if an individual bought a property in March 2023 for £1.5m:
- If the property was a house, the SDLT charge (assuming no extra 3% charge for additional properties) would be £91,250.
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Alternatively, if the property was a commercial unit, the SDLT charge would be £64,500.
‘Residential property’ includes a building that is used or suitable for use as a dwelling, or land that is (or forms part of) its garden or grounds. ‘Non-residential property’ simply means any property that is not residential property (FA 2003, s 116(1)).
Is it mixed?
It will generally be straightforward to identify whether the land is residential or non-residential. However, in some cases the distinction is unclear. Furthermore, if a building with an area which does not fit the definition of residential property is sold as a single building, it will be taxed at non-residential rates, regardless of the relative size of the residential and non-residential areas.
Mixed use might apply where (say) a building containing residential accommodation is divided into separate areas, at least one of which has been adapted for use as commercial or business premises or to separate areas of garden or grounds of the property.
Separate use
In Withers v Revenue and Customs [2022] UKFTT 433 (TC), the taxpayer bought a property. The SDLT liability was self-assessed based on the property being mixed-use. However, HMRC considered that the acquisition was of ‘wholly residential property’ and calculated an increased amount of SDLT. The dispute was over whether the land that surrounded the building (i.e., approximately 39 acres) formed parts of its garden or grounds. An agreement existed between the previous owner and a grazer for around 25 acres to be occupied for grazing sheep and cutting hay. An agreement also existed with the Woodland Trust, which had developed around 8.5 acres of woodland.
The First-tier Tribunal (FTT) held that to the extent land was occupied for grazing, and by the Woodland Trust, it did not constitute a garden or grounds and, therefore, should not be treated as residential property for SDLT purposes.
Not so fortunate
By contrast, in Averdieck & Anor v Revenue and Customs [2022] UKFTT 374 (TC), the taxpayers were less fortunate. They jointly purchased a property and initially classed the property as residential. However, they subsequently claimed an SDLT refund based on mixed-use (i.e., a public footpath ran across the rear of the property that the taxpayers were required to maintain), which HMRC refused.
The FTT did not accept that the taxpayers’ maintenance obligations impinged so heavily on them that the land could not be residential property. The FTT found that the land formed part of the grounds of the property.
Practical tip
It may sometimes be necessary to determine whether there is more than one dwelling included within a property (e.g., a separate annexe), such as in terms of establishing the extent to which the higher rates for additional dwellings apply. It should be noted that where six or more separate dwellings are the subject of a single transaction, these may be treated as non-residential property. In addition, the amount of any ‘multiple dwellings relief’ is dependent on the number of single dwellings within the transaction.
