“Grounds” of property for SDLT has a wide meaning and its ordinary meaning is land attached 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….. 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 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).”
The current First-tier tax tribunal case-law on “garden or grounds” surrounding a residential property in Hyman v HMRC , Goodfellow, Myles-Till and Pensfold is subject to appeals to the Upper Tribunal in each of these cases which have been listed for hearing in Spring next year.
I will be representing the taxpayers in these appeals. The ground of appeal is that HMRC have without justification overturned 16 years of settled practice and published interpretation that land that was not necessary for the reasonable enjoyment of the dwelling was not residential property due to the number of taxpayers who have sought to rely on this interpretation as rates of SDLT climbed to eye-watering levels.
However, at the moment a barn, meadow and bridleway are likely to be classed as residential property for SDLT purposes even though they may not be included within the exemption for principal private residences in capital gains tax. Land surrounding a house for ornamental and recreational purposes however extensive is also likely to be treated as residential property including any building or structure on the land unless there is a commercial use occurring. When such land is classed as residential property this means that the higher rates of SDLT will apply to it.
Prospective buyers of residential property with large areas of land attached should take detailed advice on the likely SDLT liability of their purchase especially if the seller’s agents claim that the property will be classed as mixed-use land for SDLT because of say, a grazing licence that appears to have been put in place only at the same time as the vendor decided to offer their property for sale. The effect of claiming for multiple-dwellings relief and of buying part of the land in the buyer’s company should also be considered.