The First-tier Tribunal (FTT) has ruled in favour of the taxpayer on an SDLT appeal [link to TC 08649.pdf (tribunals.gov.uk)], accepting that his purchase of a barn conversion and its surrounding land was liable to the non-residential rates on the basis that the property was mixed use. This is a rare win for a taxpayer, following a long line of HMRC victories in similar cases.
Whether the non-residential rates or residential rates for SDLT apply to a transaction has a significant impact on the SDLT liability of a purchaser. The rates applicable to mixed use transactions (i.e. where the land is partly residential and partly non-residential) are no higher than 5%, but for some residential transactions rates of up to 17% apply.
Mr Withers (who represented himself) bought a barn conversion with 39 acres of land. The property consisted of the converted barn, a separate dwelling in an annex, a lake, gardens, driveway, land used for rewilding and farmland used for grazing. Mr Withers accepted that the house and 12 acres of land were residential property and argued that the remaining land (used for grazing and rewilding by the Woodland Trust) was commercial.
The grazing land had been purchased by the previous owner separately from the barn conversion. A local farmer had retained rights to graze sheep on the land for over 20 years. Initially this was a handshake agreement, which had been formalised in 2006 into an agreement at a low rent, which later fell to £1.
Before Mr Withers purchased the property, the previous owner and the farmer had entered into a formal agreement for grazing rights in return for £800 pa and the farmer carrying out the necessary land management on the grazing land.
Findings of the Tribunal
The FTT accepted that the rent paid for the grazing amounted to a commercial arrangement, and so the mixed use rates applied to the purchase. This is interesting given the relatively low (though not negligible) value of the annual rent.
In addition to looking at the use made of the grazing and rewilding land, the FTT considered the layout of the property. The Tribunal confirmed that the grazing and rewilding land did not form part of the grounds of the barn conversion. It was helpful that the grazing land did not form part of the view from the barn conversion and was mostly out of sight of the house. The FTT accepted the taxpayer’s argument that 12 acres of garden was commensurate with a barn conversion, and that the full 39 acres did not amount to garden and grounds. The taxpayer had argued that garden and grounds of 39 acres would be more in keeping with a manor house or farm, rather than for a barn conversion.
The FTT concluded that the rewilding land did not have a commercial use. This land was managed by the Woodland Trust for ecological purposes. Although the Woodland Trust contributed to the costs of work to the land, this was not a commercial arrangement and could not prevent the land from constituting the garden or grounds of the house. However, the Tribunal also rejected HMRC’s argument that the land surrounding the dwelling would be suitable for leisure use if there was no commercial use of the land. Though there must be some separate purpose, it need not be a commercial one, and the land subject to the Woodland Trust agreement could therefore be non-residential even if it were not being put to commercial use.
As with all cases considering mixed or residential use, Withers turns on its particular facts. Although the case does not create binding precedent, taxpayers can be cautiously optimistic that it is possible to successfully argue that property including a dwelling can in some circumstances be mixed use for SDLT purposes.
It is not yet clear whether HMRC will appeal the decision, though some of the findings of fact could make that an uphill battle for them.