Paddock found to be residential for SDLT purposes
The residential stamp duty rate only applies where land being purchased consists entirely of residential property (i.e. 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 and includes any garden or grounds of such a building). This means that where part of the land being purchased includes some sort of non-residential element, it will make the whole transaction fall within the lower non-residential stamp duty banding.
In the recent case of Myles-Till v Revenue & Customs Commissioners the taxpayer in question acquired a residential cottage with a garden and adjoining paddock. At the time of the taxpayer’s acquisition, the paddock was separated from the garden by way of a hedge and fence but, importantly, was not being used for grazing at the time of the taxpayer’s purchase.
The First-tier Tax Tribunal had to consider whether the paddock formed part of the grounds of the cottage and therefore within the residential stamp duty rate.
The taxpayer tried to argue that the paddock amounted to agricultural use by providing a copy of estate agent’s particulars and a witness statement from an agricultural and rural planning consultant describing the paddock as agricultural.
The Tribunal confirmed that the test to determine whether grounds, such as this paddock, form part of a dwelling is not whether the land can be detached without substantial deprivation to the reasonable enjoyment of the dwelling. Instead, to constitute grounds and form part of a dwelling, the land must appendage the dwelling and not have a self-standing function.
The paddock in question was not in commercial use at the time of the taxpayer’s acquisition, there were no material physical barriers between the garden, and the paddock and the paddock’s size was comparable with the grounds of other residential properties in the area. Taking all of this into account, the Tribunal decided that there was no evidence in this case that the paddock had any self-standing function, as opposed to its being just a functional appendage of the dwelling. It was therefore treated as part of the grounds of the dwelling and the residential stamp duty rate was applied, meaning the taxpayer had to pay more stamp duty (including penalties and interest for late payment).
This is an important case to show that the test for establishing whether land is classified as residential or non-residential property is quite high, and more needs to be done to satisfy the test e.g. making sure the commercial part of the land is in use at the time of the transaction, and there being a more distinctive boundary separation in place.
For more information on commercial property and Stamp Duty Land Tax, please contact a member of the Commercial Property team or fill in the enquiry form.