Goodfellows v HMRC: SDLT and the line between mixed use and residential

With a 10% differential in the rate of Stamp Duty Land Tax (SDLT) whether the property is either residential or mixed use, it is no surprise that there have been a few cases in recent months exploring the definitions as to what is residential.

The arguments often relate to the clarity of whether all of the land surrounding a property should be considered ‘the garden and grounds’ of the property and therefore subject to residential SDLT, or because of the layout, extent and activities on the land, the purchase should be treated as non-residential. 

This was apparent in the recent tribunal case, Goodfellows v HMRC where the taxpayers argued that their garage, stable yard and paddocks were non-residential and hence the property should qualify for the lower mixed use SDLT rate.

The case

Background

The recent tribunal decision, Goodfellows follows on from the Hymans case of last year.  In the Goodfellows case, the taxpayer purchased a property described by the land agents as 'a fantastic family house in about 4.5 acres'. Included with the property was a detached garage which was used as an office as well as a stable yard and paddocks. 

The taxpayer’s case

The taxpayer asserted that, given that the garage was used as an office by the vendor (and then by themselves) and the stable yard and paddocks were used by a third party for grazing horses, this meant that the purchased land was not entirely residential. Therefore, they argued that they should be paying the lower mixed use rate and made a claim for the relief of SDLT overpaid of £48,500.

HMRC’s case

HMRC argued that the detached garage, stable yard and paddocks formed part of the grounds of the residential property and therefore was correctly classified at a residential rate.

The findings

These arguments did not see much traction with the tribunal who stated that the taxpayer’s statements were 'artificial, strained and contrary to common sense'. 

The tribunal found that:

• the office was in fact connected to the house by a covered walkway and suitable for domestic use
• the rent for the paddocks was only £1 per month so not considered commercial
• the presence of the horses helped to keep the land in good heart and saved on mowing, as well as providing an agreeable view for the house.

The tribunal therefore held that the property should have been subject to the residential rates of SDLT. 

This case acts as a further benchmark around the level of activity required to make a property mixed use. 

It was notable that the language of the estate agent was a significant sway in the case. The findings stated that the particulars of sale, which described it as an 'equestrian property' with no reference to any current or prospective commercial activity, clearly 'had some bearing on the Appellants’ decision to purchase the property'.

It also re-enforces the notion that there is a growing difference in the approach to SDLT to that taken on other taxes. This has been seen in particular with Capital Gains Tax where, in the past, HMRC have taken a more narrow view on what constitutes as ‘garden and grounds’ in order to limit the availability of relief.

In addition, it confirms that it is important to take early advice on the tax treatment of a property. For more information on how Crowe can help, please contact Caroline Fleet or your usual Crowe tax contact