SDLT Non-residential Residential
CASE REVIEW: SDLT – Non-Residential or Residential
Introduction
The Stamp Duty Land Tax (SDLT) is a tax imposed on property purchases in the United Kingdom, the rates of which vary depending on whether the property is classified as residential or non-residential. Classification ambiguities can easily give rise to disputes. Two recent cases highlight these complexities and their respective resolutions.
Preview
In August 2021, Ms Anne-Marie Hurst purchased a 16th century mansion in Devon for £1,800,000 and filed her SDLT return at non-residential rates. She argued that the property was used as a “hotel, inn or similar establishment” and noted that a meadow on the land was leased commercially for grazing and hay harvesting. HMRC disagreed and issued a closure notice reclassifying the property as fully residential, resulting in an increase in SDLT of £47,750.
Hotel???
Ms Hurst, who previously operated a wedding hall and wine business, intended to use the mansion in a similar capacity. The sellers had upgraded the property to function as a bed and breakfast or boutique hotel, providing high-quality accommodation despite COVID-19 restrictions. Ms. Hurst chose not to purchase the business as a going concern, but to concentrate on the fixtures and fittings of the property. After the purchase, she converted parts of the house into self-catering accommodation and formalized a commercial lease for the meadow at £500 per annum. After consideration by the courts, the taxpayers’ appeal was successful on the basis that the property had been used as a hotel, sparing Ms Hurst the additional liability as well as the interest that HMRC had intended to collect.
Case of Mr. Taher Suterwalla and Ms. Zahra Suterwalla at HMRC [2024] UT 00188
In the case of Mr Taher Suterwalla and Ms Zahra Suterwalla v HMRC [2024] UT 00188, the Upper Tribunal (UT) upheld the decision of the First Tier Tribunal (FTT) that an enclosure was not part of the land of the residential property. The Suterwallas had purchased a house with a tennis court, indoor swimming pool, pavilion and paddock, leaving the paddock for horse grazing on completion day. They filed their SDLT return as non-residential, but HMRC issued a closure notice, reclassifying the enclosure as residential and charging the residential SDLT rate.
The FTT ruled in favor of the taxpayers and the UT confirmed this decision, finding that the grazing lease was not relevant since it did not exist at the time of purchase and there was no proof of ‘prior commercial use. The enclosure had a separate title, was not visible from or an integral part of the house, and did not support habitation or other amenities. This decision highlights that post-completion use, such as a grazing lease, may still influence the classification of the property at the time of purchase, depending on the details of the specific case.
The complexities of SDLT classifications
Both cases highlight the complexity of SDLT classifications and the significant tax implications related to property use definitions. They emphasize the importance of accurately valuing and documenting the use of the property at the time of purchase, as post-purchase arrangements can affect tax results. These decisions provide valuable precedents for understanding how mixed-use properties may be classified for SDLT purposes.
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