SDLT: New HMRC guidance on the meaning of ‘grounds’
Rural residential property practitioners will know that stamp duty land tax (SDLT) rates payable on the acquisition of country houses – and town and city houses too – can approach 15% if the property is sufficiently expensive and if the purchaser or their spouse owns other residential property anywhere in the world.
Rural residential property practitioners also know that the ‘grounds’ of residential property are deemed to be residential for these purposes, but that any land that is not ‘residential’ or ‘grounds’ is not only taxed at the much more favourable commercial SDLT rates of not more than 5%, but also means that the whole property acquired – including the residential part – is deemed to be ‘mixed use’ and therefore subject to SDLT at commercial rates as well.
Whether a house is residential for SDLT purposes is pretty obvious, but what about ‘grounds’? Up to now, practitioners have had to be content with section 116 (1)(b) of the Finance Act 2003 which says that ‘land that is or forms part of the garden or grounds of [a residential building] (including a building or structure on such land)’ which is not very helpful. Since ‘grounds’ is not defined in the statute, it carries its ordinary dictionary meaning.
However, we now have the decision of the First Tier Tribunal in Hyman v HMRC. In this case, a couple purchased a house situated in about three and a half acres, including the garden and what was described as ‘meadow’. They initially paid SDLT at the residential rate, but subsequently argued that the meadow was neither garden nor grounds, that the meadow was separated from the garden and house by a hedge, that there was a public bridleway across the meadow, that the whole transaction should have been classified as ‘mixed-use’ for SDLT purposes, and that they should be repaid £34,950.
HMRC disagreed. They said the meadow was available to and used by both the new owners and the sellers in connection with their enjoyment of the house itself. They said it did not matter that the meadow looked as if it was agricultural, or that it was historically in agricultural use, or that the land was overgrown – or indeed not used at all.
HMRC also referred to the estate agent’s brochure which included the following statements:
- surrounded by its own stunning gardens which extend to over three and a half acres;
- the grounds are gardens are a true testament to the owners’ hard work and efforts over the years; and
- the grounds have also been left to grow as a wild meadow with defined walkways meandering through encouraging the local wildlife to flourish.
The judge rightly said that the estate agent’s brochure was not determinative of the law, but was clearly impressed by the fact that the property was presented as a whole and that the meadow was used as ancillary to the house and to enhance its enjoyment as a residence. It is worth setting out the meat of the judge’s reasoning in full:
‘In my view “grounds” has, and is intended to have, a wide meaning. It is an ordinary word and its ordinary meaning is land attached to or surrounding a house which is occupied with the house and is available to the owners of the house for them to use. I use the expression “occupied with the house” to mean that the land is available to the owners to use as they wish. It does not imply a requirement for active use. “Grounds“ is clearly a term which is more extensive than “gardens” which connotes some degree of cultivation. It is not a necessary feature of grounds that they are used for ornamental or recreational purposes. Grounds need not be used for any particular purpose and can, as in this case, be allowed to grow wild. I do not consider it relevant that the grounds and gardens are separated from each other by hedges or fences. This may simply be ornamental, or may serve the purpose of delineating different areas of land as being for different uses. Nor is it fatal that other people have rights over the land. The fact that there is a right of way over grounds might impinge on the owners’ enjoyment of the grounds and even impose burdensome obligations on them, but such rights to not make the grounds any the less the grounds of that person’s residence. Land would not constitute grounds to the extent that it is used for a separate, eg commercial purpose. It would not then be occupied with the residence, but would be the premises on which a business is conducted.’
It seems that only active use at completion of a part of a property for agricultural or other commercial use is sufficient for the mixed use classification to be properly applied. The judge’s comments seem to rule out the possibility that land that is used for both commercial purposes and ancillary to a residence (land let to a commercial shoot for example) would be classified as ‘grounds’ but she did not say so in terms. That possibility remains to be tested by the courts.