SDLT on residential property despite woodland and 15 acres

In The How Development 1 Ltd v HMRC [2021] TC8194, the First Tier Tribunal (FTT) determined that the purchase of a substantial property and grounds consisted entirely of residential property and was subject to higher residential rates of Stamp Duty Land Tax (SDLT).

• How Development 1 Ltd (How) purchased a property for £2.8m.
• The property consisted of 15.7 acres of land, the main house, the lodge house, outbuildings, areas formerly used as market gardens, orchards, further gardens and grounds and a wooded area of approximately two acres forming a boundary with a river.
• The SDLT return for the purchase by How was completed on the basis that the property was Residential property and SDLT of £334k was paid.
• The tax advisors for How submitted an amended SDLT return advising that the property had been misclassified, as the woodland to the south of the property rendered then transaction subject to tax at Lower non-residential rates. A refund of £204k was claimed.
• HMRC checked the repayment claim and ultimately issued a Closure notice concluding the woodland formed part of the garden or grounds of the dwelling and the transaction was subject to residential rates of SDLT accordingly.
• Following a Statutory review upholding the decision, How Appealed to the FTT.

The law; what is residential property?

If the subject matter of a chargeable transaction is solely residential property, it is subject to SDLT at the higher residential rates.  If the subject matter of the transaction is not solely residential property the lower non-residential rates can apply.

Residential property is defined by section 116 FA 2003.

It includes:

(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).

The FTT found that the woodland fell within this definition as:

• Garden or grounds is given their ordinary meaning.
• Grounds has a wider meaning to garden and means land surrounding a house which is occupied with the house, meaning the land is available to the owners of the house to use as they wish.
• It did not necessarily follow that Capital Gains Tax (CGT) provisions and case law should apply to SDLT despite the similarities in legislative language and considerations.
• There was no evidence of any commercial activity in respect of the woodlands. The woodland did not represent agricultural or commercial land.
• The woodland formed a natural hillside barrier between the property and the river.
• Given the public right of way through the woodland, it provided a degree of privacy and security to the property and could be said to subsist for the benefit of the property.
• The woodland was ancillary to and formed part of the garden and grounds of the property.
• The woodland did not need to be physically accessible from or be in the immediate locality of the property to be part of its grounds.

Useful guides on this topic

SDLT: Residential property & dwellings
What is residential property for Stamp Duty Land Tax (SDLT)? What tax rate applies?  What garden and grounds are subject to higher rates of SDLT?

SDLT: At a glance, Stamp Duty Land Tax, rates & allowances
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

The How Development 1 Ltd v HMRC [2021] TC8194