Property buyers aiming to reduce their Stamp Duty bill with “mixed-use” purchases are being warned that HMRC is sniffing out those exploiting the rules.
It comes as Gü puddings founder James Averdieck was hit with a £120,000 Stamp Duty bill after falling foul of a misguided mix-use claim on his family’s £3m country home.
The Averdiecks engaged a company to reclaim its perceived overpaid Stamp Duty on the basis that a public pathway on their land should be classed as non-residential, arguing that the pathway is used by a farmer which impacts their use and enjoyment of their entire land.
This would have lowered the tax owed but a recent Upper Tier Tax Tribunal case confirmed that any element of perceived non-residential land or building must be commercially exploited to qualify.
The Averdiecks footpath was found not to be commercially exploited as it was used by the farmer to access his farm rather than using the pathway for farming purposes.
Natasha Heron, a tax manager and Stamp Duty specialist at accountants Hillier Hopkins said: “Mixed-use purchases are those which contain residential and non-residential elements.
“The term ‘non-residential’ is not defined in Stamp Duty legislation as it is deemed to be a catch-all category. If an item does not fall within the boundaries of residential, it is automatically classed as non-residential.
“This poses an interesting question for large country estates and homes with paddocks, outbuildings or farmland which may not squarely fit within the conventional residential classification.
“For example, how should you categorise land which is grazed by a local farmer, large areas of woodland, public pathways or large stables which could be used for livery. Some of the larger country estates were historically farms that have been adapted over the years so how should these be classified.
“Unhelpfully, there is little guidance from HMRC and this question has only recently been tested in the courts. We now have a greater understanding of how the non-residential classification is likely to be applied.”
She added that the Averdiecks ruling is a word of warning to treat with caution the aggressive claims by some tax refund agents.
Heron said: “HMRC is taking a much keener interest in SDLT claims and Tax Tribunal decisions adds further clarity. Independent advice from a specialist tax accountant is always advisable.”