SDLT: Mixed Use and restrictions over land

Stamp Duty Land Tax (SDLT) is charged at rates of up to 17 per cent on purchases of residential property but at a maximum of 5 per cent on non-residential property. The SDLT legislation is binary and so where properties contain both residential and non-residential elements (sometimes known as "mixed use") they qualify for the non-residential rates of SDLT.

As a result, determining whether land is residential for SDLT purposes has become increasingly crucial for buyers. Legislation provides that a property is residential where it is used or suitable for use as a dwelling and that this includes the garden and grounds of that dwelling. To establish the mixed-use rates, purchasers therefore need to prove either that the building being purchased includes non-residential elements (such as a building with a flat and a shop) or that part of the garden and grounds of a property have a separate non-residential purpose (such as land let under a farm business tenancy). This has generated several cases exploring what constitutes "garden and grounds".

One unusual and interesting question that has arisen in a series of cases is whether restrictions over land can change the status of land such that it can no longer be said to constitute the garden and grounds of a dwelling. The facts of four such cases are set out below.

1. Public road: In Averdieck and another v HMRC the taxpayer purchased a property with a public road running across the rear of their garden. The road was classed as a public highway by the local highway agency and the purchasers had a number of maintenance obligations in relation to it. The purchasers alleged that the road restricted their use of the land and so did not form part of the property’s garden and grounds.
2. Electricity distribution network: Faiers v HMRC concerned a residential property with a commercial electricity distribution network on the grounds. The owner had a number of obligations as a result of the electricity lines on his land including the need to follow specific guidance regarding safety around the wires and not being able to make certain improvements on his land.
3. Sewage Treatment Plant: The property purchased in Bloom v HMRC comprised a six-bedroom house including a swimming pool, garage, stables and equestrian facilities. The purchase included 5.6 acres of land on which a sewage treatment plant was situated. The sewage treatment plant served the purchased property as well as ten other neighbouring flats. The purchasers were not able to erect any buildings on the land on which the plant was situated and had maintenance obligations in relation to it.
4. Ventilation Shaft: In 39 Fitzjohn Avenue Ltd v HMRC a company acquired a London property with a large garden. A railway line passed under the property and there was a ventilation shaft for the underground tunnel in its garden. The plot of land that included the ventilation shaft reserved certain rights to the railway companies which included an access track and associated access rights as well restrictions on how that part of the land could be used.
   
   

Although each case had very different restrictions and types of properties none of the taxpayers were successful in their arguments. The key takeaways from the judgements were:

1. Although the courts in some of the cases acknowledged that the maintenance obligations imposed could be burdensome, they did not consider that these obligations changed the nature of the property.
2. Rights of way or similar rights could affect an owner’s enjoyment of their land but that did not change the nature of the land. The example give in Bloom was that the need for planning permission for certain projects restricts people’s rights over their land but does not stop the land being garden and grounds. There was some suggestion that it might be possible for the intrusion to be so excessive as to make the property non-residential, but this was not made out in these cases.
3. In line with the decision in Hyman v HMRC it is not relevant for SDLT, when determining if land formed part of the garden or grounds of a dwelling, to consider whether the garden and grounds are needed for the "reasonable enjoyment" of the dwelling.
   
   

Although these are each unusual sets of facts that are unlikely to be of general application to most purchasers of mixed property, they do highlight the high bar needed for land that would otherwise be garden and grounds to lose that classification.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2024