In a rare defeat for HM Revenue & Customs (HMRC), the First-tier Tribunal in the case of Guerlain-Desai v Revenue & Customs Commissioners [2024] has ruled that the taxpayer was entitled to recover £225,250 in stamp duty land tax (SDLT) on her house purchase.
The property comprised a large house set in 16.6 acres of land of which approximately four acres were private formal gardens and 12 acres were mature woodlands. The taxpayer originally paid SDLT of £372,750 based on the residential SDLT rates but shortly thereafter sought a refund of £225,250 on the basis that she should have used the lower non-residential SDLT rates to calculate her SDLT liability. For SDLT purposes, 'residential property' includes land that forms part of the garden or grounds of a building and the taxpayer's argument was that the woodland was not part of the garden or grounds of the property acquired. Therefore, she considered the woodland was non-residential property and when acquired with the house, the purchase should have been of 'mixed' property including residential and non-residential elements. When property is considered to be mixed, the non-residential rates of SDLT apply to it and the taxpayer was obviously keen for these rates to apply as the top rate of SDLT is 5%, instead of the residential rates where the rate is up to 17%.
The woodland in this case was contiguous with the private garden which surrounded the house. The garden was however fenced off so as to provide privacy and security to the house owners from those utilising the woods. The woods were treated as public woodland with unrestricted access to the public and the tribunal noted there was 'considerable intrusion' into them. The taxpayer did not consider the woodland to be part of the property and instead thought of it as 'a commonly used wooded area'. There was an annual sum payable by the taxpayer to a management company for the upkeep of the woods and the taxpayer had to abide by the decisions of the management company. The tribunal considered that the woods did not form a positive function to the house and to the extent that they provided a passive function, it was no more in terms of usage or exploitation than was available to a third party, in this case the public at large, which in turn was unconnected with the dwelling. The tribunal distinguished this case from other similar cases that HMRC has won and taking into account all the facts, it decided that the woods did not comprise the garden or grounds of the house and that the non-residential rates of SDLT should have applied to the taxpayer's purchase.
With the recent abolition of multiple dwellings relief and the large disparity in the rates of SDLT between the residential rates and the non-residential rates, it is expected that taxpayers will seek to minimise their SDLT liabilities by taking advantage of the mixed-use rules where possible.
If you require any advice in connection with SDLT please contact our tax specialists.
