Stamp Duty Land Tax (SDLT). When is a Property not a “Residential Property”?

The case of Goodfellow v HMRC [2019] related to a claim for an SDLT refund of £48,500. The property was described in the estate agent’s particulars as a “fantastic family home set in about 4.5 acres within the sought after New Forest National Park” with six bedrooms, gardens, swimming pool, garaging, stable yard and paddocks. The appellants completed the purchase on 21 March 2016. The consideration was £1,775,000 (clearly a very nice family home), on which the appellants paid SDLT of £126,750, having entered the property as residential on their SDLT1 return. 

Nearly one and half years later, the appellants’ tax agents submitted a claim under para 34 of Schedule 10 of the Finance Act 2003 seeking relief of SDLT claiming an overpayment. It was asserted that the property had been misclassified as residential and should have been entered as mixed use.

HMRC submitted that the detached garage, stable yard and paddocks formed part of the grounds of the residential property and were correctly classified as residential under s116 of the 2003 Act.

The appellant submitted that the space above the garage was used as an office (as had the previous owner). That was non-residential use. The stable yard and paddocks were also non-residential as they were used by a third party for grazing horses. Furthermore, the paddocks were undeveloped land and were by definition non-residential. Hence the property was mixed use.

The rates of SDLT chargeable are set out in s55 of the Finance Act. Table A lists the residential rate and Table B the non-residential or mixed rate. Table A (the higher rates) applies only if the property is wholly residential, whereas if any of the property is non-residential, the whole of the property is treated as mixed use and the lower mixed rate of Table B applies.

This appeal turned on the correct interpretation of s116 of the 2003 Finance Act which reads:

116 Meaning of “residential property”

(1) In this Part “residential property” means –

(a) a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use, and

(b) land that is or forms part of the garden or grounds of a building within paragraph (a) (including any building or structure on such land), or

(c) an interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b); an 

“Non-residential” means any property that is not residential property.

HMRC argued that the grounds of the property were all occupied with the house. Thus, the office above the detached garage was suitable for use as a dwelling, and was certainly so at the date of the purchase. The stable yard and paddocks were part of the grounds, and the grounds were commensurate with the size of the dwelling house. The use of the paddocks by a neighbour for grazing did not alter their character as part of the grounds. The appellants retained possession and the grazing was of value to them. The rental could not be described as commercial as it was only £1 per month. The fact that the paddocks were undeveloped land was not material as they had not been sold on their own, but rather as part of the residential property.

The First Tier Tribunal dealt with each aspect of the property:

Agent’s particulars – the classification of a property for SDLT purposes is not a matter to be determined solely by reference to an estate agent’s particulars of sale. However, the particulars were prepared by reputable agents and must have had some bearing on the appellants’ decision to purchase the property. They were the fullest description available and were not challenged. They describe an equestrian property. There was no reference to any current commercial activity or the prospect of future development in the particulars. There was no suggestion that the property is anything other than a country residence. That was also plainly the view of the appellants’ solicitors who acted on the purchase, as the SDLT return was made on the basis that the whole of the property was residential, in other words the garden and grounds were all part of a dwelling. 

Land around the property – the Tribunal looked at the character of the property as a whole. The land surrounding the house was essential to its character, to protect its privacy, peace and sense of space, and to enable the enjoyment of typical country pursuits such as horse riding. It was a country setting, in an area of outstanding natural beauty. 

Large room above the detached garage – this is connected to the house by a covered walkway and is equipped with its own bathroom. It could readily be used as a guest suite, play room for children, or a games room for teenagers. There was no evidence that it had ever been let out or was separately rated for office use. The Tribinal found that this room was used as an office but was wholly residential in character. It is in principle no different from someone working from a study, spare room or even the dining room table. No question of mixed use arose.

Paddocks – the paddocks were an adjunct to the stables. They form part of the grounds, for recreational purposes. Without the paddocks, keeping horses at the property would be inconvenient and impractical. The house would cease to be an equestrian property. There was no evidence that anything approaching a commercial arrangement was made at any material time for the use of the paddocks. The rental arrangement of £1.00 per month was the modern equivalent of a peppercorn rental. The previous owner’s arrangement for the land was similar. The Tribunal found the fact that the paddocks had not been developed was of no real relevance. There was no evidence that development of open land (or the woodland area) would be countenanced by the local authority and there was no suggestion in the particulars of sale that the paddocks or woodland had any development potential. The Tribunal found that the paddocks and woodland formed part of the grounds of the property and were residential.

Stables – much the same point applies to the stables and stable yard. There was no evidence that any livery business or similar had been in operation at the time of completion of the purchase, nor that they were sold subject to the rights of an existing occupier. The stables and stable yard also form part of the grounds of the house and were necessary to its enjoyment and the Tribunal found them to be residential.

The Tribunal ruled in favour of HMRC in this case, determining that the property was a “residential property” for the purposes of the Finance Act and that the refund claimed should not be granted.

The case just shows the complexities of SDLT and refunds and allowances. Alexander JLO always advise our clients that in cases where a refund may be due or an allowance claimed, they are best advised to seek the advice of a specialist accountant with experience in dealing with SDLT or alternatively to seek a determination from HMRC.

For further information on SDLT, or for a referral to a specialist SDLT accountant, or any queries on any other area of Property Law or Conveyancing, why not contact one of Alexander JLO’s expert property team and see what we can do for you?

This blog was prepared by Matt Johnson, Partner with Alexander JLO on 24th March 2020 and is correct at the time of publication. Matt has many years of experience dealing with leasehold, freehold and shared ownership properties for first time buyers, investors and seasoned property owners. His profile on Review Solicitors can be found here