After asserting that the shared public lane bordering their extensive residential property turned it into a commercial area, taxpayers found that they were not due the £120,000 stamp duty land tax refund they had claimed.
When buying a residential property, stamp duty land tax (SDLT) is due at 12% on the top slice of the consideration above £1.5m. If the property is mixed-used (commercial and residential) or non-residential the highest rate of SDLT applicable to the purchase will be 5%, for the slice of the consideration over £250,000.
A mixed-use classification also means the 3% SDLT surcharge on residential properties is not due where the property is acquired by a company.
When James and Charlotte Averdieck bought their “stunning contemporary home” (as described in the sales brochure) with 14 acres of grounds for around £3m in September 2020, they paid SDLT of £258,630. However, in December 2020, they realised what they had bought was a mixed-use property, so they submitted an amendment to their SDLT return and requested a refund of £119,180 from HMRC.
Their justification for this change of mind was that one of the boundaries of the property is a lane, which is designated as a public footpath. This lane runs for about 500 meters to a working farm and also provides access to five other dwellings, which were under construction when the Averdiecks purchased their property.
The Averdiecks asserted that as they are responsible for the upkeep of the lane, the associated ditches and the drains, that “hinderance” restricts the domestic use of the residential property and grounds. As the property was mixed-use (part commercial and part residential) the commercial rates of SDLT should apply, rather than the residential rates.
HMRC processed the amended SDLT return and repaid the couple £119,180 in January 2021. However, in August 2021 HMRC opened an enquiry into the SDLT return seeking further information about the mixed-use claim.
The enquiry was closed in December 2021, with HMRC’s decision being that the SDLT refund was not due and had to be repaid. The taxpayers appealed this decision to the first tier tribunal (TC8623).
The taxpayers were represented by barrister Patrick Cannon, a leading expert in SDLT, who was instructed by Cornerstone Tax Ltd.
At the tribunal Cannon used a slightly different argument; the land taken up by the lane is used commercially as it provides access to a commercial farm.
He acknowledged the guidance in the HMRC SDLT manual 00475, which makes it clear that rights of way or access for utility companies will not usually prevent land from being part of the garden or grounds. However, Cannon argued that in this case the interruption caused by the commercial use and the restrictions and obligations imposed on its use was material that the property could not be classified as wholly residential.
The tribunal was not impressed – the farmer using the lane to access his farm does not make the lane a commercial element. The farmer conducts his business at the farm, not in the lane. The tribunal noted that Amazon drivers may make deliveries to households on the lane, but that it does not mean that Amazon is running a business from the lane.
The tribunal judge accepted that the obligation to maintain the lane created a burden on the taxpayers, but did not accept that such an obligation impinged so heavily as to make the lane a non-residential area.
This is the latest in a long line of cases using the mixed-use argument to reduce the SDLT paid on a residential property, but they are generally unsuccessful:
A let garage in the house grounds didn’t make the property mixed-use: Brandbros Ltd
A barn next to a farmhouse didn’t make it mixed-use: Hyman TC7271
Woodland in country house grounds didn’t make it mixed-use: How Development Ltd TC08194.
Change on the horizon
Earlier this year HMRC published a consultation on mixed-use property purchases, which suggested that a threshold of 50% commercial use should be introduced for a property to qualify as mixed-use. Alternatively, an apportionment of property value could be introduced to apply the different rates to parts of a single transaction.
Jason Croke commented: “Perhaps the Autumn Statement will include changes to the commercial/residential rules. These rules do seem to be taking up a significant amount of tribunal time and some cases are increasingly tenuous.”