A case was heard by the First-Tier Tax Tribunal (FTT) to determine whether excess woodland qualified as non-residential land for SDLT purposes. If successful a residential purchase could be classified as mixed-use by virtue of the non-residential land and subject to lower SDLT rates.
The How Development purchased ‘The How’ estate for £2.8m in 2018. The estate comprised of a main house, lodge house, outbuildings, areas formerly used as market gardens, orchards, gardens and large grounds set in 15.7 acres. Included within the estate was a wooded area to the south comprising of approximately two acres. The wooded area was not easily accessible by the inhabitants and runs alongside an ancient nature reserve known as The Thicket.
HMRC’s guidance classifies forests as non-residential land. Granted the area in dispute is not a ‘forest’ but given the similarities, the argument was put forward to the Court.
Garden and grounds are not defined within statute, as such it is prudent to turn to other taxes for guidance. HMRC’s Capital Gains Tax (CGT) manual provides guidance on the meaning of ‘garden and grounds’ for the purpose of Principal Private Residence Relief (PPR).
For CGT purposes the exempt part of a property’s grounds is deemed to be 0.5 of hectare. If the taxpayer wishes to increase this exempt area it must be seen that the grounds are sufficient for the size and character of the property. As such the larger area must be required for reasonable enjoyment of the residence.
The taxpayers turned this argument on its head as it argued that the two acres of woodland was not for the use and enjoyment of the property. By classifying the land as non-residential the purchase was subject to lower SDLT rates and How Development reduced their tax liability by £204,250.
As such, taxpayers could argue part of their purchases were non-residential for SDLT and then argue the opposite at the point of sale to obtain relief from CGT. If this was successful there would be a nuance between the two taxes which would contradict the implied similarities between the provisions as the statutory language is similar.
The How Development were unsuccessful in persuading the First Tier Tribunal (FTT) that the woodland area should be classed as non-residential land. The result is that if grounds are to be considered non-residential there must be evidence of commercial use at the date of purchase.