A recent First Tier Tribunal case (Hyman v HMRC) has usefully clarified the meaning of ‘grounds’ for the purposes of SDLT.
This is an important point because whether the grounds of a house are classified as being residential or commercial has a significant effect on the amount of SDLT payable. If it can be shown that the land in question is not ‘residential’ then potentially the whole property, including the house, will fall within the ‘mixed-use’ rates of SDLT which are calculated based on commercial rather than residential rates, which are lower.
The Finance Act 2003 does not provide much help as it simply refers to land forming part of the “garden or grounds of a [house]”.
The judgment in Hyman v HMRC expands on this. The case involved the purchase of a house which had over 3 acres of grounds including the garden and an area described as ‘meadow’. The buyers paid SDLT at the residential rate but then claimed a partial refund from HMRC, arguing that the meadow was not garden or grounds as it was separated from the house and garden by a hedge and had a right of way running across it. They wanted the property to be treated as mixed-use which would have resulted in an SDLT refund of over £34,000.
The First Tier Tribunal did not agree and their claim failed. They applied a wide meaning to ‘grounds’, i.e. being land that was attached to, or surrounding, a house and available for use by the owners of that house. It did not matter what the owners used the land for, or whether they actively used it at all, or that it was broken up with hedging/other features. It also did not matter to the tribunal that the land had been used for agricultural purposes previously, as it was not currently being used in such a way and had been clearly marketed on the basis of being the grounds of the house.
Clearly if land is used for a separate commercial purpose, for example if it was let to a tenant from which to operate their business, then it would be classed as commercial with the lower rates payable.
Large and more complex properties can sometimes raise tax questions such as this and we would always advise clients to obtain specialist tax advice from a tax advisor.
Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of advice. Please note: this article only applies to England and Wales as property in Scotland and Northern Ireland is subject to different rules.