Mixed Use Cases

(Case Law)

Comment: General confusion and ambiguity exist in defining mixed-use properties for tax purposes.

Key Points:

  • Mixed-use properties combine residential and commercial elements.
  • Determining the extent of commercial use is complex.
  • Case law shapes HMRC policy and reduces ambiguity.

Main Principles:

  • Mixed-use properties face challenges in classification, impacting tax liabilities.
  • Tribunal cases clarify definitions and applications of tax laws.
  • These cases influence both taxpayer understanding and HMRC policy.

General Confusion and Ambiguity Surrounding Mixed-Use

The concept of mixed use is deceptively simple: it refers to properties that are used for both residential and commercial purposes. However, the application of this definition in real-world scenarios has proven to be anything but straightforward.

 The ambiguity arises from the difficulty in determining the extent to which a property must be used for commercial purposes to qualify as mixed use, and the specific activities that constitute commercial use. 

This ambiguity has led to numerous disputes between property owners and HM Revenue & Customs (HMRC), often resulting in cases being brought before the First Tier Tax Tribunal.

Shaping HMRC Policy

The tribunal cases reviewed in this section are not just legal battles; they are also instrumental in shaping both internal and external HMRC policy regarding mixed use. Through these cases, HMRC and taxpayers alike gain clarity on the application of tax laws to mixed-use properties. 

Each case serves as a precedent, gradually filling the gaps in understanding and interpretation of mixed use in the context of tax obligations. This evolving case law helps to reduce ambiguity, providing clearer guidelines for taxpayers and assisting HMRC in policy formulation and enforcement.

In the following pages, we will explore several key tribunal cases that have contested the classification of mixed use. Through these cases, we will uncover the complexities of applying a seemingly straightforward concept in diverse scenarios, illustrating how the tribunals’ decisions have contributed to the current understanding and policy surrounding mixed use in taxation.

 

Mixed Use Case: Whether The Property Should Be Classified As Entirely Residential Or Mixed-Use For SDLT Purposes

(Case Law>Mixed Use Cases)

Faiers v Revenue and Customs (Stamp duty land tax – commercial electricity distribution network on land acquired with and adjoining a dwelling) [2023] UKFTT 297 (TC) (14 March 2023). Cite as: [2023] UKFTT 297 (TC)

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08768.html 

➤ The presence of a commercial electricity distribution network on property grounds does not reclassify a property as mixed-use for SDLT, allowing it to be taxed as entirely residential.

Introduction
This case revolves around James Faiers’ appeal against HM Revenue and Customs (HMRC) regarding the classification of his property for Stamp Duty Land Tax (SDLT) purposes, focusing on whether the presence of a commercial electricity distribution network on his property affects its classification as residential. Example Scenario Where This Case Law Principle Is Relevant
In a scenario where a homeowner has purchased a property that includes a commercial element, such as an electricity distribution network, this case law principle would be relevant in determining whether the property should be classified as entirely residential or mixed-use for SDLT purposes.

The Legal Principles Agreed Upon
The main legal principle established in this case is that the presence of a commercial electricity distribution network on land acquired with and adjoining a dwelling does not prevent the entire land from being considered as the “grounds” of the dwelling for SDLT purposes. The property was deemed entirely residential under section 116(1) of the Finance Act 2003, meaning SDLT was calculated based on residential rates.

General Summary
The First-tier Tribunal examined whether the presence of the electricity network disqualified the land from being considered residential grounds. Evidence showed the network’s minimal physical footprint and its limited impact on the use and enjoyment of the land, which remained contiguous and not physically separated by the network. The Tribunal found the network did not significantly alter the character of the property as residential.

This decision underscores the broad interpretation of “grounds” of a dwelling for SDLT purposes, indicating that minor commercial elements or restrictions do not automatically reclassify a property as mixed-use. The ruling emphasises the need to consider the overall use and character of the property rather than focusing solely on individual elements that might suggest a mixed-use classification.

Mixed Use Case: Was The Paddock Part Of The Grounds Of The Dwelling House – No – Mixed Use So Non-Residential Rates Apply

(Case Law>Mixed Use Cases)

SUTERWALLA & Anor v Revenue & Customs (Stamp Duty Land Tax – residential and non-residential rates of tax – was the paddock part of the grounds of the dwelling house) [2023] UKFTT 450 (TC) (23 May 2023). Cite as: [2023] UKFTT 450 (TC).

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08826.html 

➤ A paddock lacking functional support to the dwelling is classified as non-residential, affecting SDLT rates for properties with additional land.

Introduction
A tribunal case involving Mr. and Mrs. Suterwalla’s appeal against HMRC’s increased Stamp Duty Land Tax (SDLT) assessment due to a paddock’s classification.

Example scenario where this case law principle is relevant
In real estate transactions involving large properties with additional land such as paddocks or fields, determining whether such land constitutes residential or non-residential property for SDLT purposes is crucial. For instance, a buyer purchasing a house with a large garden and an adjoining paddock may face a higher SDLT if the entire property is considered residential. However, if the paddock is deemed non-residential due to its use or lack of direct utility to the dwelling, a mixed-use rate could apply, potentially lowering the tax liability.

The legal principles agreed upon
The tribunal focused on whether the paddock was part of the “grounds” of the dwelling for SDLT purposes. It concluded that for land to be considered part of the grounds, it must have a functional relationship with the dwelling, not merely be adjacent or owned together. The paddock, used under a commercial grazing lease and not visible or directly accessible from the house, did not support the dwelling’s use and thus was classified as non-residential. This decision was based on the interpretation of “residential property” under the Finance Act 2003 and relevant case law, emphasising the importance of the land’s use and its functional connection to the dwelling.

General summary
The Suterwalla case highlights the complexities in classifying land for SDLT purposes, particularly when dealing with properties that include additional land like paddocks. The tribunal’s decision rested on several key factors: the paddock’s visibility from the dwelling, its accessibility, the existence of a commercial grazing lease, and the lack of functional support to the dwelling. This case underscores the nuanced approach required in determining SDLT liabilities, considering both legal definitions and the practical use of the property. It serves as a precedent for similar disputes, illustrating that the classification of land as residential or non-residential can significantly impact SDLT calculations.

Mixed Use Case: Purchase Of House And Land – Whether The House And Land Were Wholly Residential At Acquisition.

(Case Law>Mixed Use Cases)

Andrew Jonathan and Della Ann Bloom v Revenue & Customs (Stamp Duty Land Tax – purchase of house and land – whether the house and land were wholly residential at acquisition) [2023] UKFTT 628 (TC) (12 July 2023). Cite as: [2023] UKFTT 628 (TC).

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08866.html 

➤ The entire property, including a sewage treatment plant, was deemed residential for SDLT purposes, highlighting the importance of the property’s overall use and function in tax classifications.

Introduction
This case involves a dispute over Stamp Duty Land Tax (SDLT) related to the purchase of a property, focusing on whether certain land and a sewage treatment plant were residential at acquisition.

Example scenario where this case law principle is relevant
In real estate transactions involving mixed-use properties, determining SDLT liability can hinge on whether components like sewage treatment facilities are considered part of the residential premises. This case exemplifies the complexities in classifying property elements as residential or non-residential for tax purposes.

The legal principles agreed upon
The tribunal concluded that the entire property, including the disputed sewage treatment plant area, was residential for SDLT purposes. It rejected the argument that the presence of the sewage treatment plant and related covenants constituted a commercial element, thereby affirming the residential classification and the SDLT charged.

General summary
Andrew and Della Bloom appealed against a closure notice from HMRC regarding SDLT on their property purchase, arguing part of the land was non-residential due to a sewage treatment plant. The tribunal examined whether the plant and the land it occupied could be considered non-residential.  Despite arguments about the plant’s commercial implications and its impact on the property’s use, the tribunal found the entire property, including the sewage treatment plant, was residential. 

This decision was based on the plant’s essential function for the property, the lack of a commercial operation, and the overall character of the property. The appeal was dismissed, upholding the original SDLT assessment. This case underscores the challenges in property classification for tax purposes and the importance of the property’s overall use and function in determining its tax liabilities.

Mixed Use Case: Entire Transaction Subject to Residential SDLT Rates, Confirms Access to Communal Garden Counts

(Case Law>Mixed Use Cases)

SEXTON & Anor v Revenue & Customs (Stamp duty land tax – acquisition of a flat with the benefit of a right to use a communal garden) [2023] UKFTT 73 (TC) (19 January 2023). Cite as: [2023] UKFTT 73 (TC) 

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08708.html 

➤ Buying a flat with access to a communal garden is still considered a residential transaction for SDLT purposes, with the entire transaction subject to residential rates.

Introduction
The case involves Danielle Katie Sexton and Emma Rachel Sexton’s appeal against HMRC’s decision refusing a Stamp Duty Land Tax (SDLT) refund claim for a flat deemed wholly residential, including access to a communal garden.

Example scenario where this case law principle is relevant
This principle applies when purchasing a property with additional rights, such as access to communal areas. For instance, buying a flat that includes the right to use a communal garden would still be considered a residential transaction for SDLT purposes, even if the garden is shared with others.

The legal principles agreed upon
The tribunal confirmed that the main subject matter of the transaction, including any appurtenant rights like access to a communal garden, is considered residential if it pertains to the residential property. Thus, the entire transaction remains subject to residential SDLT rates.

General summary
The Sextons acquired a leasehold interest in a flat with rights to a communal garden and later claimed an SDLT refund, arguing the transaction included non-residential elements. 

HMRC disputed this, treating the property as wholly residential. The tribunal examined whether the communal garden access changed the property’s residential nature. It concluded that the right to the garden, being appurtenant to the residential leasehold, did not alter the transaction’s residential character. 

The tribunal also noted that even if the garden right was considered separately, it would still support the residential use of the property, thus falling under residential property definitions for SDLT purposes. Consequently, the appeal was dismissed, affirming that properties with communal amenities like gardens are treated as residential for SDLT, reinforcing the understanding of residential property within tax law.

Mixed Use Case: Key Considerations in Mixed-Use Properties for Stamp Duty Land Tax

(Case Law>Mixed Use Cases)

Thomas Kozlowski v The Commissioners for His Majesty’s Revenue and Customs (STAMP DUTY LAND TAX – Mixed Use – Garage Let on Day of Completion – Property Status – Residential or Non-Residential) [2023] UKFTT 711 (TC) (08 August 2023). Cite as: [2023] UKFTT 711 (TC)

URL: https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08902.pdf 

➤ Letting out part of a property, like a garage, on the day of purchase doesn’t make it mixed use for SDLT if it’s part of the home’s grounds, keeping the tax rate residential.

Introduction
The case involves an appeal by Thomas Kozlowski against HMRC’s assessment of Stamp Duty Land Tax (SDLT) on a property he purchased, arguing it should be considered mixed use due to a garage let on the day of completion.

Example scenario where this case law principle is relevant
In a scenario where a property buyer lets out part of the property (such as a garage) for commercial purposes on the day of completion, they might argue this makes the property mixed use, potentially lowering the SDLT rate applicable. This case examines whether such an arrangement affects the SDLT calculation.

The legal principles agreed upon
The tribunal determined that the nature of the property, as residential or non-residential, must be assessed at the time of transaction completion, not at the end of the effective date. It found the property wholly residential, including the garage, despite a commercial lease agreement made on the day of completion.

General summary
The tribunal’s analysis focused on whether the property’s status as mixed use or wholly residential should be determined at the moment of completion or by the end of the effective date. 

It concluded that the property’s status must be assessed at the time of completion. Despite a commercial lease agreement for the garage made on the day of completion, the tribunal found the property, including the garage, to be wholly residential. 

This decision was based on the fact that the garage was part of the garden or grounds of the main property and the lease did not constitute a genuine commercial arrangement. 

Mixed Use Case: Tribunal Clarifies Residential vs. Non-Residential Property Definitions Under Finance Act 2003

(Case Law>Mixed Use Cases)

Mark White & Anor v Revenue & Customs (appeal – decision of HMRC to refuse a claim for a refund of Stamp Duty Land Tax) [2023] UKFTT 866 (TC) (29 September 2023). Cite as: [2023] UKFTT 866 (TC). 

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08943.html 

➤ Buying a property with land doesn’t automatically make it mixed-use for SDLT if the land serves as an extension of a home, focusing on use and intention at sale time.

Introduction
A tribunal decision on an appeal against HMRC’s refusal to refund Stamp Duty Land Tax for a purchase which included both residential and non-residential elements.

Example scenario where this case law principle is relevant
In a real-life scenario, property buyers might claim a refund on Stamp Duty Land Tax by arguing that their purchase included both residential and non-residential elements. If, for example, they bought a property with surrounding agricultural land, they could argue this mix should result in a lower tax rate. This case illustrates how such claims are assessed, focusing on the nature of the land and its use at the time of the transaction.

The legal principles agreed upon
The tribunal focused on defining “residential property” versus “non-residential property” under the Finance Act 2003. It concluded that land’s historic or potential use for agriculture does not preclude it from being considered residential if it functions as an appendage to a dwelling. The absence of commercial activity or specific use agreements at the transaction’s effective date is important in this determination.

General summary
The case involved an appeal by Mark White and Carol Kane against HMRC’s decision to refuse a refund of £13,000 in Stamp Duty Land Tax. The appellants argued that their purchase of Horton Hall, which included several fields, should be classified as mixed-use, thus qualifying for a lower tax rate. 

The tribunal examined whether the fields were part of the property’s grounds or had a separate commercial use. Despite evidence of agricultural use in the past, the tribunal found no indication that the fields had a distinct commercial purpose at the transaction’s effective date. It also considered the geographical proximity of the fields to the main dwelling, their historical connection to the estate, and the lack of formal agreements for agricultural use at the time of purchase. Ultimately, the tribunal concluded that the fields were part of the residential property’s grounds, dismissing the appeal and upholding the original tax classification. 

Mixed Use Case: Property Deemed Wholly Residential, Resulting in Increased SDLT Rate

(Case Law>Mixed Use Cases)

Espalier Ventures Property (Lansdowne Road) Ltd v Revenue And Customs (STAMP DUTY LAND TAX) [2023] UKFTT 725 (TC) (23 August 2023).Cite as: [2023] UKFTT 725 (TC).

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08914.html 

➤ A property with residential spaces and separate garages or shared gardens is still considered wholly residential, leading to a higher SDLT rate.

Introduction
This case revolves around the dispute over the correct rate of Stamp Duty Land Tax (SDLT) applicable to a property transaction by Espalier Ventures Property Ltd.

Example scenario where this case law principle is relevant
In real estate transactions where properties are purchased with mixed-use characteristics, such as residential spaces alongside separate garages or shared gardens, determining the correct SDLT rate can be complex. This case exemplifies how the classification of property as residential or mixed-use impacts SDLT calculations.

The legal principles agreed upon
The tribunal concluded that the property in question was wholly residential, leading to a higher SDLT rate. It was determined that separate garages and rights to shared gardens, intended for residential use, did not qualify the property as mixed-use under the Finance Act 2003.

General summary
Espalier Ventures Property Ltd appealed against HMRC’s decision that a higher SDLT rate was due for their acquisition of a London property, arguing it was mixed-use due to separate garages and shared garden rights. The tribunal examined whether these elements were independent or ancillary to the residential property. 

It found that the garages, intended for integration into the dwelling, and the rights to the communal garden, were appurtenant to the residential use. Thus, the property was classified as residential, subjecting the transaction to higher SDLT rates. This decision underscores the importance of the property’s intended use and the relationship between its components in determining SDLT liability.

Mixed Use Case: Tribunal Upholds SDLT Rate Decision Based on Property Use Criteria

(Case Law>Mixed Use Cases)

MODHA v Revenue & Customs (STAMP DUTY LAND TAX – whether property mixed use such that table B of Finance Act 2003 determines rate for SDLT purposes – commercial use of 8-acre field ) [2023] UKFTT 783 (TC) (20 September 2023). Cite as: [2023] UKFTT 783 (TC).

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08936.html 

➤ An 8-acre field within a property is considered residential, not mixed-use, for SDLT if it’s connected to the dwelling, affecting the tax rate.

Introduction
A tribunal decision on whether an 8-acre field part of a property purchase qualifies as mixed-use for Stamp Duty Land Tax purposes.

Example scenario where this case law principle is relevant
This case illustrates the importance of understanding how different parts of a property, such as an 8-acre field, are classified under SDLT regulations, affecting the tax rate applied.

The legal principles agreed upon
The tribunal confirmed that the SDLT rate depends on whether the property is considered residential or mixed-use. The key legal principle was whether an 8-acre field, part of the property, was used in a way that connected it to the dwelling, thereby affecting the SDLT rate. The tribunal followed established criteria, including layout, proximity, extent, and legal constraints, to determine the field’s classification.

General summary
The case involved Sangeeta Modha’s appeal against HMRC’s decision on the SDLT due for her purchase of Firs Farm. Modha argued the property, including an 8-acre field, should be taxed as mixed-use, potentially lowering the SDLT. The tribunal examined the field’s use, accessibility, and relationship to the residential dwelling to determine if it constituted part of the “grounds” of the dwelling under SDLT regulations. 

Despite arguments and evidence presented, the tribunal concluded the field did not have a separate commercial use at the time of purchase and was therefore part of the residential property. As a result, the appeal was dismissed, and the property was subject to the higher SDLT rate applicable to residential properties. This decision underscores the nuanced evaluation required to classify parts of a property for SDLT purposes, focusing on their use and connection to the dwelling.

 

 

Mixed Use Case: Impact of Public Right of Way on Property Classification and Stamp Duty Land Tax

(Case Law>Mixed Use Cases)

Averdieck & Anor v Revenue And Customs (STAMP DUTY LAND TAX – residential and non-residential rates of tax – were the grounds mixed use because of a public right of way – no) [2022] UKFTT 374 (TC) (17 October 2022). Cite as: [2022] UKFTT 374 (TC), [2023] SFTD 265, [2022] STI 1365.

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08623.html 

➤ A public right of way through a property does not make it mixed-use for SDLT, meaning the property can still be taxed as residential.

Introduction
The Averdieck case revolves around an appeal against HMRC’s decision regarding the classification of a property for Stamp Duty Land Tax purposes.

Example scenario where this case law principle is relevant
In a situation where a property buyer claims a property should be classified as “mixed use” due to a public right of way affecting its use, this case demonstrates the legal scrutiny applied to determine if such a claim holds under the law, impacting the Stamp Duty Land Tax payable.

The legal principles agreed upon
The tribunal concluded that the presence of a public right of way (in this case, a road used for access to a farm and other residences) does not automatically classify a property as mixed use for Stamp Duty Land Tax purposes. It emphasised that the use and enjoyment of the property by the owner, alongside statutory obligations related to the right of way, do not detract from its classification as residential.

General summary
The Averdieck case involved an appeal against HMRC’s decision on the classification of a property purchased for £2,999,000 as purely residential for Stamp Duty Land Tax purposes, despite a public right of way running through it. 

The appellants argued that this should classify the property as mixed use, potentially reducing their tax liability. However, the tribunal, led by Judge Anne Scott, found that the public right of way did not significantly impact the property’s use to warrant a mixed-use classification. It highlighted that the property’s enjoyment and the obligations imposed by the public right of way did not alter its essential residential character. The tribunal’s decision rested on the interpretation of legal definitions and precedents, particularly focusing on whether the presence of a public right of way could transform a property’s classification to mixed use. Ultimately, the appeal was dismissed, upholding the original classification and the associated tax implications.

Mixed Use Case: Tribunal Evaluates Land Use Impact on Property Classification for SDLT

(Case Law>Mixed Use Cases)

Withers v Revenue And Customs (Stamp Duty Land Tax – purchase of house and land – whether the house and land were wholly residential property – no) [2022] UKFTT 433 (TC) (25 November 2022). Cite as: [2023] SFTD 342, [2022] UKFTT 433 (TC).

URL: https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08649.html 

➤ A property with land used for grazing and conservation can be considered mixed-use for SDLT, potentially reducing tax liability.

Introduction
The case involves an appeal against a higher Stamp Duty Land Tax (SDLT) assessment for a property deemed wholly residential by HMRC, which was contested by the appellant.

Example scenario where this case law principle is relevant
A homeowner purchases a property with extensive land, some of which is used for grazing under a formal agreement and part managed by the Woodland Trust. They claim the property should be classified as mixed-use for SDLT purposes, potentially reducing their tax liability.

The legal principles agreed upon
The tribunal had to determine if parts of the property were non-residential due to their use for grazing and environmental conservation, impacting the SDLT classification. It focused on whether the land’s use supported the dwelling as a residence or had a separate, self-standing function.

General summary
Gary Withers appealed against an increased SDLT assessment after purchasing Lake Farm, arguing it included non-residential land due to a grazing agreement and a portion managed by the Woodland Trust. 

The tribunal examined the property’s layout, the extent of the land, and the nature of the agreements in place. It concluded that the grazing land and Woodland Trust area did not function as an appendage to the dwelling but had separate, self-standing functions. 

Therefore, these parts should not be classified as residential property for SDLT purposes. This decision highlights the importance of land use and agreements in determining property classification for tax assessments, offering a precedent for similar cases where land associated with a dwelling serves commercial or environmental purposes.

 

Mixed Use Case: Property Development Firm Challenges Tax Classification of Large Estate Over Woodland Use

(Case Law>Mixed Use Cases)

The How Development 1 Ltd v Revenue & Customs (Stamp Duty Land Tax – residential or mixed use – woodland within curtilage of country house) [2021] UKFTT 248 (TC) (15 January 2021). Cite as: [2021] STI 2038, [2021] UKFTT 248 (TC). 

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08194.html 

➤ A large estate with a house and woodland is considered residential for SDLT, even if it includes woodland, because it benefits the dwelling.

Introduction
The How Development 1 Ltd’s appeal against HMRC’s decision on Stamp Duty Land Tax for a country house with woodland was dismissed.

Example scenario where this case law principle is relevant
In a situation where a property development company purchases a large estate that includes a house, outbuildings, and woodland, and then disputes the classification of the property as entirely residential for tax purposes, arguing it should be mixed use due to the woodland.

The legal principles agreed upon
The tribunal agreed that the entire property, including the woodland, was residential for the purposes of Stamp Duty Land Tax, with no non-residential element. This decision was based on the woodland being part of the garden or grounds of the dwelling, and thus subsisting for the benefit of the dwelling.

General summary
The How Development 1 Limited purchased a property known as The How, which included a main house, lodge house, outbuildings, and approximately 2 acres of woodland. The company later argued that the property was misclassified as residential instead of mixed use due to the inclusion of woodland, seeking a refund of £204,250 in Stamp Duty Land Tax. 

The tribunal examined whether the woodland formed part of the garden or grounds of the dwelling house and whether it subsisted for the benefit of the dwelling. Evidence presented included descriptions of the property, its use, and the nature of the woodland. 

The tribunal concluded that the woodland was integral to the character and enjoyment of the property, providing privacy and security, and thus was residential in nature. The appeal was dismissed, affirming that the property was correctly classified as residential, and no refund was due. This decision underscores the broad interpretation of “garden or grounds” in the context of large country properties, including woodland areas, for tax purposes.

 

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.