Stamp Duty Land Tax (SDLT): No mixed messages for mixed use

Holding & Anor v HMRC continues a trend, with the key takeaway being the ‘use’ in mixed use.

Holding & Anor v HMRC continues a trend, with the key takeaway being the ‘use’ in mixed

Why the fuss?

The difference in SDLT rates between the top rate for residential property (17 percent if all surcharges apply) and the top rate for mixed use property (5 percent) has led to a number of cases testing where the dividing line is. As a recap, mixed use property is not split into parts, the tests are all or nothing, making this distinction potentially very valuable. 

This case

Holding & Anor v HMRC is another case of a house with substantial land around it, some of which had the grass cut and bailed for use by a nearby farm, under a ‘handshake’ agreement.

Key findings

The tests now becoming common place in these cases to determine to what extent land is ‘grounds’ (and so residential) or not were mentioned again: past (and future) use; layout & contiguity; legal restrictions on use; and crucially purpose. This last test again being taken as key, so that use alone becomes less important unless that use is for a commercial purpose. In this case the growing of grass for use by a local farmer did not provide any income and so is not seen as a commercial use of the land (c.f. Modha v HMRC where grazing of animals without any income found the same).

Anyone considering whether the substantial SDLT savings for mixed use property are available for a specific transaction should look carefully at the long list of cases which have all found in favour of HMRC (but note one case in Scotland for Land and Buildings Transactions Tax: Sloss & Anor, where there was a small income for grazing licences which was held to be a commercial amount). There will be cases where mixed use is the correct answer, but the risk of HMRC challenge is high and so cases should be watertight before filing on this basis.