‘Residential property’ is defined in section 116 FA 2003, and means 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, land that is, or forms part of the garden or grounds of such a building [Emphasis] and any interest or right over such building or land. “Grounds” of a property has a wide meaning for SDLT purposes and means land that is attached to or surrounding a house which is occupied with the house or available to the occupants of the house to use. The grounds do not need to be used for any particular purpose.
If the use or function of the land adjoining the dwelling supports the use of the building as a dwelling, then unless there is separate commercial use occurring on part of that land, then on the current case law from the First-tier Tax Tribunal, it is likely to be regarded as residential property. This is reflected in the following comment from Judge Citron in Myles-Till v HMRC:
“44. What indicates that a piece of adjoining land has become part of the “grounds” of a dwelling building? Technically, the fact that a dwelling building is sold together with adjoining land, as a single chargeable transaction for SDLT purposes does not make that adjoining land, necessarily, part of the grounds of the dwelling building: s55 clearly envisages the possibility that the subject matter of a single chargeable transaction will include both residential and non-residential land. Common ownership is a necessary condition for the adjacent land to become part of the grounds of the dwelling building – but not, in my view, a sufficient one. To that extent I cannot accept HMRC’s submission that it is sufficient that the adjacent land is available to the owners to use as they wish. One must, in addition, look at the use or function of the adjoining land to decide if its character answers to the statutory wording in s116(1) – in particular, is the land grounds “of” a building whose defining characteristic is its “use” as a dwelling? The emphasised words indicate that that [sic] the use or function of adjoining land itself must support the use of the building concerned as a dwelling. For the commonly owned adjoining land to be “grounds”, it must be, functionally, an appendage to the dwelling, rather than having a self-standing function.”
The current position is encapsulated in the following quote, also from Myles-Till:
“51. I agree with the tenor of the discussion in the HMRC manuals quoted above that:
(1) a grassy field, or a paddock, might or might not be part of the grounds, depending (typically) on whether there was actual commercial use (of which there was no evidence here); and
(2) historical use – including traditional or habitual use, establishing the land’s true relationship to the dwelling building – can be relevant (though not, of course, determinative) – but in my view the actual use at the relevant time is critical (and I read McInerney as a reminder to look beyond a formal label of “use”, the error made by the magistrates in that case).”
In Hyman v HMRC [2022] EWCA Civ 185, the Court of Appeal accepted that there will be cases where there will be room for reasonable disagreement about whether a parcel of land did or did not fall within the definition of residential property, but it refused to imply a limitation to the size of garden and grounds and left it to individual tax tribunals to evaluate the facts in each particular appeal in order to decide whether land fell within the meaning of ‘garden or grounds’ of a dwelling.
There have been a considerable number of appeals since then where the taxpayers have sought to argue that certain areas of land acquired with a dwelling were not part of the garden or grounds and hence not residential property.These decisions include the following:
- • Modha v HMRC TC/2021/14252 – whether an 8-acre field that sloped away at the bottom end of a large garden and paddock was a part of the “grounds” of the dwelling and as such, liable to SDLT at the rates in Table A. The FTT held that because the field was contiguous, that 8 acres was not an unusual size of land for this house in this location, that there was nothing to prevent the field from being used for residential purposes at the time of completion, and the field had no commercial use it was available for use with the dwelling and so attracted the rates of tax in Table A.
- • 39 Fitzjohns Avenue Ltd v HMRC [2024] UKFTT 28 (TC) – a large railway tunnel ventilation shaft surrounded by steel fencing in the garden of a substantial dwelling in Hampstead, London. The property had been purchased for £19.75m, and the SDLT reclaim if the property was of mixed-use would have been £1,899,250 and the main issue was whether the use or function of that part of the land was such that it could not be considered to be part of the grounds of the dwelling. In answer to this question, the FTT said “We do not consider that the intrusion of the ventilation shaft and its apparatus is sufficiently severe in relation to the size and nature of the Property as a whole to take it to the far end of the spectrum where it is no longer part of the grounds of the dwelling.”
- • Harjono & Santoso v HMRC TC/2023/00910 – whether the purchase of a house, garden and a 1.5 acre paddock was of mixed residential and non-residential property because of the existence at the very point of completion of a commercial grazing lease over the paddock. The FTT decided that the paddock was part of the grounds of the dwelling and was, therefore, residential property, notwithstanding the existence of the commercial grazing lease. The FTT said that a grazing agreement signed before completion and dated by their solicitor at the same time as the land transfer on the day of completion meant that the property was encumbered by the grazing agreement at the point of completion however the FTT found that the grazing agreement, in this case, was not commercial enough and, in a novel approach, said that the weight to be given to the use of the land in question is to be largely determined by the “ultimate use” of that land and not by any “intermediate use”. An example of this given by the FTT was quarrying the land, which, in its view, would exclude the land affected from being grounds of the dwelling regardless of whether the terms of the lease were for commercial rent or a peppercorn and this was because the “ultimate use” was quarrying. Some might struggle with this concept, given that most paddocks are not quarried. And, in a rather brave detour from the facts of the case in hand, the FTT also suggested that a dwelling on the paddock that was used for a letting business was likely to weigh heavily against that land comprising the grounds of the main dwelling. In the FTT’s view the term “commercial” is a weasel word, and one must look through the commercial agreement and consider the end use of the land as well.
- • Michael v HMRC TC/2022/12710 – presence of a woodland of 3.5 acres at the back of their dwelling and its garden of half an acre. The FTT did not accept the taxpayers’ evidence that the woodland did not provide any privacy or security for the half-acre garden and dwelling and so was not a part of the grounds of the dwelling.
- • Holding v HMRC TC/2020/02201 – a country house with land extending to 40.6 acres. The FTT found that all the land, including a field that was used all year round for agricultural purposes and which was not visible from the dwelling, did provide amenity and benefit to the dwelling and as such, performed a function in relation to the dwelling as a dwelling so that property was wholly residential.
- • HMRC v Daniel Ridgway [2024] UKUT 36 (TCC) – a clause in a lease over a property prevented residential use but the extant planning permission permitted only residential use – held that the physical attributes of the property should be given more weight than the legal restrictions in determining whether it was suitable for use as a dwelling and because the facts pointed to suitability for use as a dwelling absent the legal restriction, the property was entirely residential in nature.
- • Guerlain-Desai v HMRC TC/2022/13097 – a dwelling house and 16.6 acres of land consisting of around 4 acres of formal gardens and 12 acres of mature woodlands was held to be of mixed residential and non-residential property because the woodlands did not have a functional purpose for, or use, that supported the dwelling.
The leading decision on mixed-use is now HMRC v Suterwalla and Suterwalla [2024] UKUT 00188 (TCC) which involved the purchase of a substantial dwelling house with gardens and a paddock. The UT upheld the FTT’s finding that the paddock was not part of the grounds of the dwelling and said:
“41……In short, the FTT was entitled to decide the case as it did whether or not a different FTT may have decided things differently and we should not interfere with that decision.
- We accept Mr Cannon’s submissions on this point. In our view, the FTT identified the correct approach and found that the paddock was not part of the grounds of the house for reasons other than the grant of the grazing lease which the FTT set out in [59] and [60]. Although we agree that the FTT erred in [60(6)] in ascribing any weight to the fact that Mr Suterwalla would have preferred to buy the house without the paddock if it had been possible to exclude it from the purchase, that does not necessarily mean that the FTT’s conclusion is not supported by its other findings which are either unchallenged or, if challenged, we have upheld. The relevant findings are that:
the paddock and the house (with gardens and tennis court) have separate titles at the Land Registry;
the paddock is not close to the house and is not visible from the house or gardens;
the paddock is only accessed from the gardens by a single small gate;
the paddock does not support the dwellinghouse, garden or the tennis court; and
the paddock does not form an integral part of the Property.”
Although not necessary for its decision, the UT went on to consider the effect of the grazing lease over the paddock that had been entered into after the actual time of completion on the day of completion and it considered that the approach of the UT in Ladson Preston v HMRC [2022] UKUT 301 (TCC) in relation to multiple dwellings relief was correct. It followed that whether a particular SDLT relief or treatment applies requires an analysis of the nature of the chargeable interest acquired at the very time of completion. On this basis, the grazing lease should not have formed part of the FTT’s analysis of the nature of the chargeable interest acquired at completion. However, the UT then said at [51] that:
“51. Our conclusion does not mean that a grant of a grazing lease (or other interest) after completion can never be taken into account. The subsequent use of land may be evidence of its nature or character at the time of completion. For example, the grant of grazing lease by new owners after completion may formalise an informal arrangement between the previous owner and a neighbour which allowed horses to be kept and grazed on the land or be a reinstatement of historic commercial use. As discussed above, however, there was no evidence in this case of any previous use of the paddock to show that it was not part of the grounds. To put it another way, the evidence and the FTT’s findings of fact were consistent with the grazing lease being an entirely new use of the paddock which only commenced after Mr and Mrs Suterwalla had already acquired the chargeable interest on completion.”
This approach can be compared with the analysis of the FTT in Harjono & Santoso (above) which was that a grazing agreement signed before completion and dated by their solicitor at the same time as the land transfer on the day of completion meant that the property was encumbered by the grazing agreement at the point of completion.
The importance of witness evidence should not be underestimated in these types of case and if the matter proceeds to an appeal hearing the judges will almost always place much importance on what a purchaser has to say about the grounds of the dwelling and their demeanour while giving evidence.
Cases that may seem weak on their facts can still be won by the taxpayer on the basis of an honest and straightforward description of the property in the witness box under questioning from both sides and the judges as the decisions in Suterwalla and Guerlain-Desai show.
