Understanding Mixed-Use Property for Stamp Duty Land Tax: Recent Cases & Key Considerations

When purchasing property in England, understanding the nuances of Stamp Duty Land Tax (SDLT) is crucial, especially concerning mixed-use properties. A mixed-use property combines both residential and non-residential elements, such as a building with a shop on the ground floor and flats above or a house which is sold together with a field of bare agricultural land.

Mixed-use properties are taxed at non-residential SDLT rates, which are generally lower than residential rates, potentially leading to significant savings for buyers. However, correctly identifying whether a property qualifies as mixed-use under SDLT rules can be complex. Mike Bracegirdle, specialist Agricultural Lawyer, explains more.

Defining Residential Property for SDLT

The Finance Act 2003 (Section 113) defined residential property

• A building that is used or suitable for use as a dwelling or is in the process of being constructed or adapted for such use; or
• Land that is or forms part of the garden or grounds of a building within the definition above including any building or structure on such land; or
• An interest in or right over land that subsists for the benefit of a building within the description of building or land above.

Understanding this definition is essential, as it determines whether a property is classified as residential or mixed-use for SDLT purposes.

Recent Tribunal Cases Impacting Mixed-Use Classification

The following recent tribunal cases have considered what constitutes mixed-use property:

1. Lynch v Revenue and Customs Commissioners [2024] UKFTT 350 (TC): In this case, Mr. and Mrs. Lynch purchased a property comprising a house, converted barn, cottage, and 22 acres of land. They argued that the property was mixed-use since the land was used by a local farmer for grazing cattle. However, the tribunal found that the grazing arrangement was informal and did not constitute a commercial use. Consequently, the property was classified as wholly residential for SDLT purposes.

Key factors influencing this decision included:

• Lack of a formal commercial arrangement – The grazing was informal, with no clear lease or Farm Business Tenancy (FBT) agreement in place.
• Control over the land – The Lynches retained full access to the land, and the farmer’s use did not prevent them from using it.
• Non-exclusive use – The farmer did not have a legally enforceable right to use the land exclusively, meaning it was not considered a self-contained commercial enterprise.
• No independent function – The land was not used for a business purpose independent of the residential property.

The case confirms that occasional or informal agricultural use does not automatically result in mixed-use status. If the land had been formally let under an FBT, the ruling may have been different.

2. Hurst v Revenue and Customs Commissioners [2024] UKFTT 306 (TC): Hurst purchased an 11-bedroom property, part of which was let as self-catering holiday accommodation, and a meadow used by a local farmer under a formal agreement. The tribunal accepted that these activities constituted commercial use, classifying the property as mixed-use and allowing the application of non-residential SDLT rates.

This decision suggests that a clear commercial arrangement, evidenced by formal agreements and revenue generation, is key to securing a mixed-use SDLT classification

Key Considerations for Buyers

If you are considering purchasing a property with both residential and non-residential elements, it’s important to assess whether the non-residential component is substantial and genuinely commercial. Factors to consider include:

• Nature of Non-Residential Use: Is there a clear commercial activity, such as a business operating on the premises or formal agreements for agricultural use?
• Formal Agreements: Are there formal leases or contracts in place for the non-residential use? Informal or casual arrangements may not be sufficient to qualify for mixed-use classification.
• Extent of Non-Residential Area: Is the non-residential area significant in size and function relative to the entire property?

Given the complexities and potential financial implications, professional advice from a tax specialist is recommended to ensure accurate SDLT classification and compliance.

How can Butcher & Barlow assist?

Understanding the distinction between residential and mixed-use properties for SDLT purposes can be crucial in structuring property transactions effectively. However, tax matters, including SDLT classification, are complex and should be assessed by a qualified tax advisor. Our Property Team can guide you through the legal aspects of property transactions and work alongside your tax advisor to ensure your transaction is structured appropriately.

If you are contemplating purchasing a property with mixed-use potential, contact us today to discuss your specific circumstances and how we can assist you from a legal perspective.

Contact Mike at mbracegirdle@butcher-barlow.co.uk or Agricultural Property specialist Rebecca Jepson at rjepson@butcher-barlow.co.uk

 

 

The information in this article was correct at the time of publication. The information is for general guidance only. Laws and regulations may change, and the applicability of legal principles can vary based on individual circumstances. Therefore, this content should not be construed as legal advice. We recommend that you consult with a qualified legal professional to obtain advice tailored to your specific situation. For personalised guidance, please contact us directly.