Did land form part of the “grounds” of a house?
Section 116 of the Finance Act 2003, which deals with stamp duty land tax, defines “residential property” as being a building that is used, or that is suitable for use as a dwelling (or that is in the process of being constructed or adapted for such use). The definition includes “land that is or forms part of the garden or grounds” of such a building and specifically includes “any building or structure on such land”. If any part of a property does not fall within section 116, the whole of the property is “non-residential” and is liable to stamp duty land tax at “non-residential or mixed-use” rates.
The litigation in Hyman v HMRC [2019] UKFTT 0469 (TC) concerned a property known as “The Farmhouse”, near St Albans, which was sold with more than 3.5 acres of land. The buyers paid £1,515,000 for the property in 2015 and paid stamp duty land tax in the sum of £95,550, which was the correct amount of tax if the property was wholly residential. But the buyers claimed that it was, in fact, a mixed-use property because it included non-residential elements – in particular, a barn, meadow and bridleway, which were physically separated from the dwelling by hedges – and that the lower rate of stamp duty land tax applicable to non-residential or mixed use properties of similar worth should have applied.
HMRC drew the tribunal’s attention to the definitions of the word “grounds” that appear in the Oxford and Cambridge English Dictionaries, which describe them as “an area of enclosed land surrounding a large house or other building” and as “land that surrounds a building”. HMRC accepted that planning permission would be required before the barn, which was used to store machinery needed to maintain the meadow, could be used for residential purposes. But it argued that the barn still fell within section 116 as a building or structure that formed part of the grounds of a residential building.
Section 116 of the Finance Act 2003, which deals with stamp duty land tax, defines “residential property” as being a building that is used, or that is suitable for use as a dwelling (or that is in the process of being constructed or adapted for such use). The definition includes “land that is or forms part of the garden or grounds” of such a building and specifically includes “any building or structure on such land”. If any part of a property does not fall within section 116, the whole of the property is “non-residential” and is liable to stamp duty land tax at “non-residential or mixed-use” rates.
The litigation in Hyman v HMRC [2019] UKFTT 0469 (TC) concerned a property known as “The Farmhouse”, near St Albans, which was sold with more than 3.5 acres of land. The buyers paid £1,515,000 for the property in 2015 and paid stamp duty land tax in the sum of £95,550, which was the correct amount of tax if the property was wholly residential. But the buyers claimed that it was, in fact, a mixed-use property because it included non-residential elements – in particular, a barn, meadow and bridleway, which were physically separated from the dwelling by hedges – and that the lower rate of stamp duty land tax applicable to non-residential or mixed use properties of similar worth should have applied.
HMRC drew the tribunal’s attention to the definitions of the word “grounds” that appear in the Oxford and Cambridge English Dictionaries, which describe them as “an area of enclosed land surrounding a large house or other building” and as “land that surrounds a building”. HMRC accepted that planning permission would be required before the barn, which was used to store machinery needed to maintain the meadow, could be used for residential purposes. But it argued that the barn still fell within section 116 as a building or structure that formed part of the grounds of a residential building.
The buyers drew the tribunal’s attention to cases relating to section 222 of the Taxation of Chargeable Gains Act 1992, which relieves taxpayers from capital gains tax on the sale of a principal private residence with gardens and grounds of up to half a hectare (unless HMRC is satisfied that a larger area of land is required for the “reasonable enjoyment” of the property). But the tribunal did not find the decisions helpful.
In the judge’s view, the word “grounds” has a wide meaning. Grounds are more extensive than a “garden” (which connotes some degree of cultivation) and are attached to, or surround, a house and are occupied with it. Furthermore, they need not be put to active use. So grounds need not be used for ornamental or recreational purposes, may be separated from gardens by hedges or fences, and may even grow wild. And the fact that they are subject to a right of way will not disqualify them from forming part of the grounds of a residence. By contrast, land would not form part of the grounds of a residence to the extent that it is used for a separate purpose.
Therefore, the whole of the property was “residential property” for the purposes of stamp duty land tax, and the tax had been correctly charged and paid.
Allyson Colby, property law consultant
