When does land form part of the garden or grounds of a house?

The rates of SDLT payable on land transactions vary. The litigation in Hyman v HMRC [2021] UKUT 68 (TCC); [2021] PLSCS 62 decided three separate appeals raising the same point of law about the meaning and effect of section 116 of the Finance Act 2003, which defines “residential property” as including land that “is or forms part of the garden or grounds” of a dwelling. Each of the cases concerned the sale of a house together with accompanying land and the buyers each argued that their purchases should be classified as a mix of residential and non-residential land, because some of the land they had purchased with their houses did not form part of their gardens or grounds – and should, therefore, be liable to lower rates of SDLT. If their argument was correct, two of the buyers would be entitled to SDLT repayments of £34,950 and £48,500 respectively. And the third buyer, a company, would be entitled to relief from the 15% higher rate of SDLT on part of the price paid for its land. The buyers relied on a previous statement of practice, published by HMRC, suggesting the test to be applied was similar to that applied for the purposes of capital gains tax relief on main residences. In other words, the residential element would include only the land that was needed for the reasonable enjoyment of the dwellings, having regard to their size and nature. But HMRC had revised its guidance as to the operation of section 116 in 2019. Its new guidance did not repeat the reference to land being needed for the reasonable enjoyment of a dwelling – and HMRC argued that it would be wrong to hold that the garden or grounds of a house were residential, for the purposes of section 116, only if they were needed for the reasonable enjoyment of the house. There was no such requirement in section 116 and its previous statement of practice did not alter the meaning of the statutory provision. Consequently, it was open to a court or a tribunal to say that its earlier guidance was wrong. The Tribunal agreed. HMRC’s guidance was non-statutory. It did not differ from statements by academic authors in textbooks or articles, or enjoy any particular legal status, and ultimately, the court or tribunal must decide what legislation means and whether HMRC’s guidance was right or wrong. The legislation dealing with capital gains tax was expressed in quite different terms from section 116. And it was clear to the Tribunal that HMRC’s original guidance – that it would apply a test similar to the express statutory test used for capital gains tax purposes – was wrong. “Garden” and “grounds” are ordinary English words. The Tribunal had not been referred to any dictionary definition supporting the idea that a piece of land must be needed for the reasonable enjoyment of a dwelling in order to form part of its garden or grounds. And, in the absence of any statutory wording to give effect to the limitation for which the buyers were arguing, there was no such limitation on the operation of the provision. So the appeals were dismissed and the higher residential rates of stamp duty land tax applied. Allyson Colby, property law consultant