HMRC look closely at mixed-use SDLT claims

HMRC has recently lost a First Tier Tribunal (FTT) claiming the purchase of a £7.9 million property was subject to residential rates of Stamp Duty Land Tax (SDLT). The tax differential was an additional £477,250. 

The decision hung on whether, at the date of completion, the Property consisted entirely of residential property; or whether it included land that was used for another purpose. 

The Property, Woodmancote Place, comprised a mixed-use land and property estate, including;

• A substantial 10 bed house used as a residence, with formal gardens and grounds
• 2 staff cottages
• Courtyard including 10 stables and further equestrian facilities
• 150 acres of land 

On the land; 

• Equestrian use of stables and manège (a former stud farm)
• Sheep were grazed
• Maize was grown
• A 130 head commercial deer park on 60acres
• Rural Payments Agency (RPA) compliant for Basic Payment and Countryside Stewardship Mid-Tier 

HMRC’s view: The rural features of the property were typical of a countryside estate, which provides the occupier with a private, self-contained dwelling and all the necessary facilities for an active lifestyle. The land enhances the rural character of the property and provides a treasured view. 

Taxpayer’s view: Land does not solely constitute grounds for the property to the extent that it is used for separate commercial purposes. 

Being able to provide evidence of commercial activity undertaken before completion, and immediately after, is essential. Where possible the commercial activity should be referenced in the sales contract. 

The taxpayer was successful in defending their claim that the property was of mixed-use and therefore subject to lower rates of SDLT. 

The result is not surprising but the fact it had to be heard in the FTT reflects the taxpayer and HMRC’s diametrically opposed views, an observation of the judges in this case. HMRC’s reluctance to concede perhaps reflects a fundamental lack of understanding of rural property and businesses or perhaps just a reluctance to back down where there is a significant differential in tax due. 

HMRC have targets to generate revenue and reduce the ‘tax gap’. We are therefore likely to continue to see more cases of this nature being brought, not just in relation to SDLT but also other taxes. HMRC routinely run ‘campaigns’ to encourage tax compliance and issue ‘nudge’ letters to taxpayers they suspect may need to revise their returns. Recent campaigns include encouraging correct reporting of ‘private use’ adjustments for owner managed businesses, via voluntary disclosure and amendment of returns (see our last newsletter). 

Our advice regarding any enquiry by HMRC, whatever the tax, is to keep good contemporaneous evidence of commercial activity vs private use. Examples include business meeting minutes, photographs where there is a change of use or development, diary or timesheet to record time spent on business activities, mileage records to evidence business / private vehicle use. 

We offer all our clients the peace of mind that our professional costs will be covered in dealing with a HMRC enquiry through subscribing for our cost effective annual ‘Tax Investigations Service’ (TIS). 

If you would like to discuss TIS or take it out, please speak with your regular Albert Goodman contact.