SDLT and mixed use property: proceed with caution!

The Case

The property consisted of a substantial residential property and a sizeable garage, both held under separate title numbers. The garage was within the garden and grounds of the main house and could be accessed from the garden of the main house both on foot and by road.

A tenancy was granted over the garage to a company on the same date that the sale of the property completed. Whilst the company was a commercial business, Kozlowski (the purchaser of the property) was a minority shareholder in that company.

The company planned to use the garage to store books (although it did not allow the tenant ‘exclusive possession’ of the garage). This was important as Kozlowski also stored his own possessions in the garage..

Under the terms of the tenancy agreement the company was required topay £50 per month to Kozlowski as well as electricity costs of the garage. However, there was no evidence that payments had been made.

Key Considerations

The three primary areas of consideration by the FTT were as follows:

1. Whether the lease existed at the time of the purchase
2. Whether the garage falls within the definition of residential property (and therefore the use of the garage was irrelevant)
3. Whether the garage was an interest in land that exists for the benefit of the main house

The decisions were as follows:

1. In line with previous case law (specifically Ladson Preston v HMRC), the FTT noted that what is important is the status of the chargeable interest at the time it was acquired. In this case, the chargeable interest was wholly residential and the fact that a lease was then granted in respect of part of that property was irrelevant.
2. The garage was not found to used for a separate non-residential purpose and was found to be part of the garden and grounds of the main property.
3. In line with 2),the garage was found to be part of the property and could not be regarded as an interest in land in its own right.

Key takeaways

• What is important here is the status of the property at the time of completion.
• Where structures might be considered to be “ancillary” to the main subject matter of the transaction, usually the main property these are highly likely to be seen to be part of the garden and grounds of that property and for its use and enjoyment. Other examples of this are residential purchases involving paddocks (with some exceptions such as Suterwalla v HMRC).

What does this mean for buyers of residential property with additional features?

We envisage that HMRC will continue to dig deep into purchases involving SDLT claims for mixed use Property.

A 12-week HMRC consultation into SDLT matters such as this ended on 22 February 2022 but an approach (or change in approach) to calculating SDLT on transactions such as this is yet to be announced.

It is highly likely that there will be material changes to the SDLT rules in the short-term and we would advise people buying property that is a little out of the ordinary to seek advice on the specific SDLT treatment of the transaction, especially as there may be a need to act quickly if changes are proposed.

Next Steps

If you require assistance with claiming relief for SDLT, or in reclaiming overpaid SDLT, please do not hesitate to get in touch. Our team of expert advisers have a wide range of experience of dealing with  SDLT matters.