CASE REVIEW: SDLT – Non Residential or Residential
Stamp Duty Land Tax (SDLT) is a tax imposed on property purchases in the UK, with rates varying based on whether the property is classified as residential or non-residential. Classification ambiguities can easily lead to disputes. Two recent cases highlight these complexities and their respective resolutions.
In August 2021, Ms. Anne-Marie Hurst purchased a 16th-century manor house in Devon for £1,800,000 and filed her SDLT return under non-residential rates. She argued that the property was used as a 'hotel or inn or similar establishment' and noted that a meadow within the grounds was leased commercially for grazing and hay harvesting. HMRC disagreed, issuing a closure notice reclassifying the property as wholly residential, leading to an increase in SDLT of £47,750.
Ms. Hurst, who had previously operated a wedding venue and a wine business, intended to use the manor in a similar capacity. The vendors had upgraded the property to function as a bed-and-breakfast or boutique hotel, offering high-quality accommodation despite COVID-19 restrictions. Ms. Hurst chose not to purchase the business as a going concern but focused on the property's fixtures and fittings. After the purchase, she converted parts of the house for self-catering accommodations and formalised a commercial lease for the meadow at £500 annually. Upon review by the courts, the taxpayers appeal was allowed on the grounds that the property had been used as a hotel, saving Ms Hurst the additional liability plus interest which HMRC had intended to levy.
In the case of Mr. Taher Suterwalla and Mrs. Zahra Suterwalla v HMRC [2024] UT 00188, the Upper Tribunal (UT) upheld the First Tier Tribunal's (FTT) decision that a paddock was not part of the residential property grounds. The Suterwallas had purchased a house with a tennis court, indoor swimming pool, pavilion, and paddock, letting the paddock out for horse grazing on the day of completion. They filed their SDLT return as non-residential, but HMRC issued a closure notice, reclassifying the paddock as residential and applying the residential SDLT rate.
The FTT ruled in favour of the taxpayers, and the UT upheld this decision, finding the grazing lease irrelevant since it did not exist at the time of purchase and there was no evidence of prior commercial use. The paddock had a distinct title, was not visible from or integral to the house, and did not support the dwelling or other amenities. This decision emphasizes that post-completion use, such as a grazing lease, can still influence the property's classification at the time of purchase, depending on specific case details.
Both cases underscore the complexities of SDLT classifications and the significant tax implications tied to property use definitions. They highlight the importance of accurately assessing and documenting property use at the time of purchase, as post-completion arrangements can affect tax outcomes. These rulings provide valuable precedents for understanding how properties with mixed uses may be classified for SDLT purposes.
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