SDLT: Mixed use plan fails on co-ordinationby
This advantageous treatment of mixed-use residential/non-residential properties for stamp duty land tax (SDLT) was put to the test in the recent tribunal appeal of Brandbros Ltd.
Brandbros Ltd paid stamp duty of £15,000 on the purchase of a residential property including a garage, but then sought a partial refund on the basis the property had mixed-use and the non-residential SDLT rates should apply. HMRC's refusal to recognise the mixed use claim led to an online tribunal appeal in April (TC08126).
Stamp duty land tax (SDLT) offers rates for commercial type properties and for residential type properties. When a property consists of both residential and commercial aspects, the legislation permits you to treat the whole transaction as non-residential, as the non-residential SDLT rates and bands are much more favourable.
In addition, classifying the purchase as mixed use avoids the 3% SDLT surcharge on residential properties being acquired by corporate entities.
The facts of the case
The sales brochure promoted the property as a three-bedroom property including a garage. Completion took place on 27 July 2018 and on the same day the buyer (Brandbros Ltd) issued a lease of the garage to SFEP Ltd for £2,000 per year for storage/office use. No change of use was applied for, nor were business rates applicable to the garage. The residential property was let to residential tenants unconnected with SFEP.
The taxpayer’s view was a commercial lease was granted on the effective date of the transaction, so the land should be classified as mixed-use. The garage no longer formed part of the garden or grounds of the dwelling due to its commercial use, and the change of use occurred on the same day as the property transaction.
HMRC’s view was at the time in which the property was purchased, it did not include any non-residential elements. It was sold with vacant possession with no lease in place and the lease did not change the character of the property from residential to non-residential. The garage is a building on the grounds of the property and even if the lease was accepted, the garage continued to be used for storage, the natural purpose of a garage.
The conclusion of the first tier tribunal was the garage should be treated as a building in the garden of the property. As a matter of statutory interpretation, the garage is treated as residential property under FA 2003 s116 regardless of the use to which it is put. Under FA 2003 s116(1)(a) the house is treated as residential property. Also FA 2003, s116(1)(b) extends that treatment to the garden and grounds of the house, including any buildings or structures and those areas. There is no limitation in section 116(1)(b) to areas that are used for residential purposes.
The granting of the lease does not alter the classification of the property. FA 2003 states a contract for land transaction is completed by a conveyance and the conveyance sets the date of the transaction.
The FTT noted that the contract was for the property as a whole including the grounds, and there was a separate conveyance to the commercial lease that followed on the same day. That commercial lease was a separate transaction, itself a notifiable event for SDLT albeit with no SDLT liability due to the low value involved.
If it is possible to grant a lease before acquiring the property, it is still not clear as to whether that would then create the opportunity the taxpayers in this case sought to achieve: can the garage become a separate commercial space to the residence it is associated with? It may take another case to determine that question.
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Jason has over 20 years’ experience working exclusively in indirect taxes (VAT, import duty, SDLT) with owner-managed businesses, corporates and not for profit sectors. He particularly enjoys challenging HMRC decisions, representing clients in tribunals or during inspections.
Experience includes land and property, partial exemption and...