Faiers is the latest case in HMRC’s war on those seeking to reduce the Stamp Duty Land Tax (SDLT) on buying their home. Typically these cases are driven by claims advisers and rely on claiming Multiple Dwellings Relief (MDR) or mixed use rates.
MDR applies where more than one dwelling is acquired, allowing the SDLT to be based on the average price of the dwellings acquired rather than the total price paid. This can reduce SDLT considerably if buying a house with an annex or granny flat, and has led to a stream of cases where taxpayers claimed relief for somewhat dubious annexes. This has included such gems as an annex comprising a room with a sink and cupboards claimed as a kitchen, and a room with a WC but no sink, bath or shower being the bathroom!
Where a property comprises a residential and non-residential element, the non-residential rates can be used, which normally gives a significantly lower SDLT bill. In previous cases, taxpayers have claimed that stables and a paddock or an annex used as a home office were non-residential. The courts’ approach has been – to put it colloquially – “pull the other one”. The home office in the annex was likened to a person who uses a spare bedroom in their house as an office.
The approach of the courts is clear – if it looks and smells like a house, garden and grounds then you pay the residential SDLT rates.
In the First-tier Tribunal case [2023] UKFTT 297 (TC), Mr Faiers bought a house which had a power network on its land. The network comprised power cables supported by poles, one of which was on Mr Faiers’ land.
The taxpayer argued that the power network was non-residential use, and so the land was not wholly residential. Mr Faiers explained that it was possible and safe to walk under the power cables and indeed he could mow the grass under them. However care had to be taken not to hit the cables as this could cause problems and be unsafe. This was a particular problem for Mr Faiers as he had young children who were prevented from flying their kites, using water pistols and having other sorts of fun near the cables.
The Tribunal looked at earlier cases* involving public right of way over the land (such as a footpath or an access road) where it had been decided that this was not enough to make the land in question non-residential. The judge in Faiers likened the power network to a right of way over the land and decided that the relatively small inconvenience this caused wasn’t enough to make that bit of the land non-residential.
But is this right? If land has some non-residential use, arguably it is irrelevant how small that use is. If you buy a shop with a flat above, that is mixed use. If you buy a street with 20 houses and a shop, so is that. And if you buy a whole suburb with 5,000 houses and a single shop, that is still mixed use. So if the power network is non-residential, it should be irrelevant how little inconvenience it makes to Mr Faiers’ enjoyment of the house and garden. It will be interesting to see if the case goes to appeal and whether the decision is changed if it does.
SDLT, MDR and the law
The significant savings under the current rules do encourage these sort of cases. The only way to sort this out is to change the law. And indeed that is what was proposed in a consultation document published in November 2021. For mixed use property it was suggested that an apportionment should be made between the value of the residential and non-residential elements. It would still normally be attractive to attribute as much value as possible to non-residential elements, but the SDLT savings are likely to be much lower than under the present all-or-nothing system.
For MDR various options are considered. One idea is to allow MDR only for properties purchased for business purposes e.g. to rent. If you buy a house with an annex to use as your home, MDR wouldn’t be available. Even if you installed your mother-in-law in the annex and charged her rent, you still wouldn’t get MDR as there would only be one rental property. The other idea mooted would be to allow MDR only if the second dwelling was at least one third of the value of the whole property.
Although the consultation document was published in 2021, we are still awaiting further announcements on any proposals. Watch this space (or should that be land?).
For more information on SDLT and other property taxes, please get in touch with your usual BKL contact or use our enquiry form.
*Our previous articles looking at earlier cases considered by the Tribunal include:
- SDLT: ‘Garden or grounds’ means what it says (Hyman & Others v HMRC [2022])
- A road to SDLT reduction? (James and Charlotte Averdieck v HMRC [2022])
