Tribunal finds that mixed-use SDLT rates should be reined in for purchase of property and paddock

In HMRC v Suterwalla and another [2024] 188 (TCC), the Upper Tribunal (UT) has confirmed that mixed-use stamp duty land tax (SDLT) rates applied to the purchase of a property and adjoining paddock.

Background

On 11 December 2020, Mr and Mrs Suterwalla (the taxpayers) purchased a property which included a family house and adjoining paddock.  On the same day (but after completion), they granted a grazing lease to their neighbour in respect of the paddock.

On 14 December 2020, the taxpayers filed an SDLT return which declared that the property was a residential and non-residential mixed-use property, on the basis that the paddock was a non-residential part of the property. The consequence of that declaration was that less SDLT (£169,500) was chargeable on the transaction than if the property had been purely residential (£330,750). HMRC opened an enquiry into the return. On 8 November 2021, HMRC issued a closure under paragraph 23, Schedule 10, Finance Act 2003, increasing the SDLT due in respect of the acquisition of the property from £169,500 to £330,750.

The taxpayers successfully appealed to the First-tier Tribunal (FTT). HMRC then appealed to the U,T arguing that the FTT erred:

1. by declining to apply the UT's decision in Ladson Preston Ltd v HMRC [2022] UKUT 301 (TCC), in which it was held that the property's nature at the time of completion was relevant, when determining whether the property was purely residential;
2. in treating the grazing lease as relevant to the issue of whether the transaction was for the acquisition of land consisting entirely of residential property; and
3. in any event, in finding that the taxpayers had established that the property was of mixed use. 

UT decision

The appeal was dismissed.

In relation to ground 1, the UT agreed with the FTT that it was not obliged to follow Ladson Preston because that case concerned with multiple dwellings relief and not mixed use SDLT rates. The UT noted that Ladson Preston confirmed that the chargeable interest acquired is the chargeable interest that exists at the time of completion, and therefore the SDLT chargeable is the SDLT chargeable at the time of completion.

With regard to ground 2, the UT found that the FTT had erred in its approach when considering whether the paddock was part of the grounds of the house. This was because the FTT took into account the existence of the grazing lease which did not exist until after the time of completion. As a result, the grazing lease should not have formed part of the SDLT analysis.

As for ground 3, the UT found that the paddock was non-residential because:

(i) there were separate titles at the Land Registry for the house and paddock;

(ii) the paddock was not close to or visible from the house;

(iii) the paddock was only accessible by a small gate; and

(iv) the paddock did not support the house, nor did it form an integral part of the property.

Overall, on the facts, the UT agreed with the FTT that the lower rate of SDLT payable for a mixed-use property, was the correct rate.

Comment 

The UT's reasoning is helpful in clarifying when a property may be considered mixed-use and so subject to the lower rate of SDLT. Although the nature of the property at the time of completion is relevant when determining whether the mixed use SDLT rates apply, the UT did note that there may be circumstances where a transaction that takes place after completion will evidence the nature of the property at completion. 

The decision can be viewed here.