Charlotte Brackley considers two recent Stamp Duty Land Tax (SDLT) cases brought against HMRC and the potential implications for buyers and sellers.
Anyone who has bought or sold (or considered buying or selling) a house with land – whether that’s a Country house and 30 acres or a farmhouse and 1,000 acres – will have had to think carefully about whether or not the property’s use qualifies for mixed-use SDLT relief (meaning that the lower non-residential SDLT rates apply). This is because the tax difference between residential rates and non-residential rates applying can be hundreds of thousands of pounds or more, depending on the value of the land, making it fundamental to the success of the deal.
There have been two recent decisions relating to mixed-use that are worth considering (always bearing in mind that the First-Tier Tribunal (FTT) decides each of its cases on the facts and as such they do not create binding precedents). These are:
- How the Gu Desserts founder got it wrong in relation to a footpath (J and C Averdieck and Another v Revenue and Customs [2022] UKFTT 374 (TC)); and
- How Mr Withers’ long established third party grazing and ‘non-residential’ (but not ‘commercial’) rewilding swayed the FTT (Withers v Revenue and Customs [2022] UKFTT 433 (TC)).
I’m also going to look at what to consider (long before) exchanging contracts and (long, long before) making your self-assessment application to HMRC post-purchase.
A footpath is not a ‘commercial use’
HMRC has successfully attacked a large number of mixed-use SDLT applications, including that brought by the founder of Gu Desserts.
Mr Averdieck bought a 14-acre £3m property in respect of which he paid around £260,000 in SDLT having self-assessed on the basis that the property was residential. He then engaged a tax refund company (commonly referred to as ‘ambulance chasers’) to try and reclaim £120,000 of that tax on the basis that the property was actually mixed-use. He asserted that it was mixed-use because it included a public footpath (running along the route of a lane on the property) which a neighbouring farmer used to access his land for commercial farming. The FTT acknowledged that the Averdiecks were subject to the same statutory obligations as any other owner of a public footpath, but determined that this was not sufficient to reclassify the property as mixed-use.
The FTT were of the view that this case should be a warning to those using tax refund agents where the claim is weak, as was the case here. Where mixed-use is being claimed, the ‘business’ needs to be carried on after completion and there needs to be clear documentary evidence of this.
Rare success for Mr Withers
Mr Withers bought 39-acres of land including a barn conversion with a separate dwelling in its annexe, 12 acres of gardens and grounds (including a lake), land used by the Woodland Trust for rewilding and farmland used by a third-party grazier for sheep. HMRC took the view, as they often do, that this was a purely residential property and that Mr Withers should not take the benefit of the mixed-use relief.
Mr Withers fought HMRC and won because he successfully argued (i) the long-term grazing agreement was commercial and (ii) that whilst rewilding was not ‘commercial’, it was nonetheless ‘non-residential’ which meant that the relief applied – and he had the documentary evidence to back this up.
Change of approach by HMRC? Unlikely.
It seems unlikely that this decision will herald a change in approach by HMRC. But it does provide a glimmer of hope and some guidance for those buying and selling land where a case could be built for mixed-use.
Mr Withers succeeded because he had the evidence to support his claim and had clearly assessed the viability of using mixed-use relief before his submission to HMRC. Armed with that, he was able to persuade the FTT that his claim for mixed-use was sound.
By contrast, the Gu Desserts case shows exactly how not to do this and it is cases like these that gives HMRC the impetus to keep challenging mixed-use claims.
I’m thinking of selling, how can I best prepare the sale for my buyer?
Here are a few suggestions as to how you might frame your sales pack so that it is optimised for mixed-use. These aren’t exhaustive and you need to be thinking about these ideally before going to market. They also won’t guarantee a successful outcome (I wish they could!), but they’re a good place to start:
Brochure
How is the property described in the brochure? What do the photographs show? If there are cattle or sheep grazing on the land, are they shown in the pictures? This is the first document that HMRC will Google when they begin thinking about bringing an action so make sure that you and your agent are aligned in how the property is being presented, particularly if there is also an opportunity to claim Multiple Dwellings Relief (MDR).
Memo of Sale
How is the land described in the Memorandum of Sale? Is reference made to any grazing or other third-party agreements etc that the sale is subject to? This is another document that HMRC may want to look at.
Third party arrangements
What are the current arrangements with third parties at the property and how are they documented? All of these should be referred to in the contract.
- If there is a verbal grazing arrangement in place, speak to Sarah Jordan who can help you clarify whether it’s a grazing agreement or a Farm Business Tenancy that needs putting in place so that the land is sold subject to and with the benefit of that arrangement which then continues post-completion.
- Are all lettings formalised?
- Are there any environmental agreements affecting the land?
It will be up to the buyer to make sure that they continue the arrangement and identify the income in their self-assessment tax return.
Machinery and kit
Are you intending to sell machinery or kit that relates to the non-residential activities on the property? If so, a list of items for sale and their prices is a useful thing to have ready. This should also be referred to in the contract.
Still consulting
Finally, the days of the mixed-use SDLT relief – in its current form at least – could be numbered.
The Government’s Consultation on mixed-use relief (and MDR), was launched in November 2021 largely in response to a landslide of ‘ambulance chaser’ SDLT refund claims. The Government has made various suggestions as to how these reliefs might be reformed. The public consultation closed a year ago, but there have been no announcements made at the date of writing and we don’t yet know when that might change.
So, while there is still time to take the benefit of mixed-use relief, make sure that the evidence stacks and we are ready to help you with that.
How Moore Barlow can help
Moore Barlow has a team of leading legal experts who are country people themselves and can genuinely empathise with you, your business and your opportunities and challenges. Please do contact the rural law team, we would be happy to help.
