The recent ruling on the Hyman case by the First Tier Tribunal is a useful pointer to how HM Revenue & Customs (HMRC) differentiates between residential use and mixed-use classifications, and when a commercial rate for Stamp Duty Land Tax (SDLT) might apply, says Martyn Dobinson, Partner at Saffery Champness and a member of the firm’s Landed Estates and Rural Business Group.
In the Hyman case, the taxpayer had paid the higher residential rate of SDLT on their property purchase, but subsequently claimed the property should have been classified as mixed-use and that SDLT was therefore due at the lower commercial property rate. The highest rate of SDLT payable in respect of a residential property is 15%, compared to 5% for a commercial property. As well as a farmhouse, the property purchased consisted of two gardens, a duck pond, barn and meadow with a public bridleway running through it and had been advertised by the estate agent as a residential property with grounds.
Property is determined as mixed-use where it does not consist entirely of residential property. Residential property includes ‘land that is or forms part of the garden or grounds of a residential building.’
HMRC had argued that the meadow was available to be used as part of the owner’s enjoyment of the house itself and was therefore included as part of the residential property.
In this case the judgement found in favour of HMRC and stated:
“Land would not constitute grounds to the extent that it is used for a separate, eg commercial purpose. It would not then be occupied with the residence but would be the premises on which a business is conducted.”
Martyn Dobinson said:
“The facts of a given case, at the transaction completion date, are obviously crucial in determining the correct treatment. HMRC’s evolving guidance, and this latest case, indicate that to qualify as mixed use and therefore for the lower commercial rates of SDLT, it is important that some of the property is occupied and actively used for some other purpose, and so precluding it from recreational use by the owners. In this particular case, clearly, public access by virtue of the public bridleway was not enough.
“We have no doubt that HMRC will continue to study these cases carefully and challenge mixed-use claims in the future where there is any doubt as to the use of a property.”
SDLT only applies in England and Northern Ireland. Land Transaction Tax (LTT) and Land & Buildings Transaction Tax (LBTT) apply in Wales and Scotland respectively. The rules for LTT and LBTT are different to those for SDLT.