If the property you are buying has a commercial element to it, or perhaps a second dwelling (such as an annex or outhouse), it is possible that you may be able to apply the lower rates of SDLT (for mixed-use properties) or to claim Multiple Dwellings Relief (MDR), thus reducing your SDLT liability.
HMRC has become increasingly ‘wary’ of transactions where reliefs are claimed. It can be very hard for solicitors to be sure that their SDLT claim is correct.
Engaging a tax specialist to advice on your SDLT liability is the way forward!
The recent of HMRC v J Gibson demonstrates HMRC’s approach to analysis which gives rise to an SDLT saving.
The case centered around the classification of the property. This was known as Doe Bank Manor, which was purchased for £1,595,000 in January 2019. The question was whether the property was classed as ‘residential’ or ‘non-residential’ for SDLT purposes.
The property was a substantial estate, of a six-bedroom house, a double garage with an office above it. Also a two-bedroom self-contained barn with two bathrooms, and an open-plan living, dining and kitchen area. Additionally, it has two stables and a 2 acre paddock. The paddock had been let to local farmers for sheep grazing for around 4 years.
When Mr Gibson’s solicitors submitted the SDLT return they did so on the basis that, as a result of the sheep grazing, the transaction was ‘mixed-use’, resulting in an SDLT liability of £69,500. (The SDLT return did not include a claim for MDR).
However, HMRC argued that the residential rate of SDLT should apply to the entire property based mainly on the fact that the property was used solely for residential purposes at the time of acquisition and issued a closure notice on this basis, thus increasing the SDLT liability from £69,500 to £153,000.
The precise use of a property at the date of the transaction is often critical to the SDLT analysis, and whilst the property included 0.5 acres of farm buildings and a farmyard, these were not being used. They were also separated from the paddock by a fence.
However, photographs in the sale brochure and a property visit indicated grazing sheep on the paddock. A market garden was also established to utilise the paddock for animal rearing and grazing. As Gibson had stated an ‘ad hoc grazing arrangement’ had been formalised, confirming that the land had been used for grazing for four years, with previous use prior to that by local farms. This agreement was still in effect when Gibson’s purchase was completed.
The First Tier Tribunal (FTT) found in HMRC’s favour, concluding that the paddock did not serve a self-standing commercial purpose and that it was not actively and substantially exploited for commercial gain.
Mr Gibson argued if the land was not mixed use he should be able to make a claim for MDR. This was on the basis that the separate house and barn constituted separate dwellings. (e.g. they had their own separate addresses, their own kitchens and bathrooms etc).
Whilst a claim for MDR may have been available, the FTT found that Gibson had failed to amend his SDLT return within the statutory time limit in order to make that claim. His claim lacked the necessary evidential basis, as the presence of kitchens and bathrooms in the house and barn was not sufficient alone to argue that separate dwellings existed.
This case emphasises the importance of:
Engaging with a tax adviser with specialist knowledge is critical. Every property transaction is unique, and we can provide bespoke tax advice based on the facts and circumstances of your transaction. Please get in touch with ETC Tax to get the appropriate knowledge when dealing with situations similar to this one.
