Can combining mixed-use and residential purchases save you money on SDLT?
The rate of Stamp Duty Land Tax (SDLT) payable on a purchase can vary significantly, depending on whether the property is residential or mixed-use. At the top end of the market, this variation could add up to millions of pounds.
A recent Tax Tribunal decision showed how a transaction involving a high-value home can still qualify for mixed-use classification. It’s an unusual case, which HMRC intends to appeal, but it is worth understanding if you’re buying property that could be described as mixed-use. In this article, we’ll tell you more about it.
The Sehgal Case
The case - Raj Sehgal v The Commissioners for HMRC – concerned a single purchase under one contract for a total price of £18.25 million.
There were three components under this single purchase:
A luxury apartment with a 900+ year lease
A parking space, also with a long lease
A basement storage unit under a new 20-year lease, located separately from the apartment
The buyers initially filed and paid SDLT on the full purchase price at the (higher) residential rate. However, their advisers argued that the storage unit was non-residential and legally distinct from the apartment. The buyers then amended their return and demanded a £1.75 million refund, claiming that the whole transaction should be treated as mixed use and that a lower SDLT rate should apply.
HMRC rejected the buyers’ claim for a refund. Its position was clear: there was one contract, one purpose for the property and therefore, one rate of SDLT. The storage unit, HMRC argued, was inextricably linked to the flat and part of the dwelling, even if it wasn’t physically part of the property.
The Tribunal’s decision
The Tribunal disagreed with HMRC and decided in favour of Raj Sehgal. It focused on the statutory definition of residential property in the Finance Act 2003. In particular, it considered whether the storage unit was part of the dwelling or ‘appurtenant or pertaining’ to it.
The Tribunal decided that the unit should not be considered part of the dwelling, because:
It had its own title
It was held under a separate lease
It could be sold, let or held independently of the apartment
Because the transaction included a genuine non-residential element, the Tribunal decided that mixed-use SDLT rates applied to the entire acquisition. Even though the apartment was by far the most valuable component of the deal, the storage unit portion changed everything.
Why does this matter?
The Tribunal’s decision in this case came with clear limits. It will not be binding on other courts or Tribunals. It’s also possible that HMRC will appeal and the decision will be reversed.
However, it’s still an important decision. There will have been hundreds of transactions in the past where garages or storage areas are treated as part of a dwelling and taxed at residential rates. In the future, the decision in this case could be relied upon in a similar, unusual situation.
In effect, it’s a reminder that mixed-use SDLT rates can apply even where a residential element dominates in value. If you’re buying a property with multiple components, could you make use of this ruling?
Talk to your solicitor today
Even if your purchase isn’t as complex as Mr Sehgal’s, having a top-class solicitor in your corner will make sure nothing gets missed, and you get the best possible result.
At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city’ level talent and experience, but also friendly and welcoming. Everything we do fits with our values of integrity, honesty and authenticity.
Call 01428 774756 or visit couchmanhanson.co.uk.