In the case of Lazardis v Revenue and Customs Commissioners [2024], the taxpayer has had to pay an additional £1,214,250 of Stamp Duty Land Tax (SDLT) as the First-tier Tribunal (FTT) ruled that the property acquired was entirely residential for SDLT purposes.
The taxpayer bought a large house with three cottages set in 106 acres of mature parkland for £10,750,000. Within the 106 acres was a 40 acre-area (the 'fields') to the rear of outbuildings at the back of the main house. The fields were only partly visible from the main house and at the time of the acquisition, there was a one-year mowing licence in place to an unconnected company which gave the company the right to take away one or two cuts of grass each year from the fields 'depending on the availability or crop due to weather conditions'. This licence was the latest in a series of mowing licences granted to the company since September 2016. The company used the cut grass to either make hay or haylage which it used to feed its own cattle or sold at a profit. The rate paid for the licence (£1,400 per year) was, according to the taxpayer, a market rate although the FTT considered it insignificant in the context of the value of the property.
In addition to mowing, the company had a number of other obligations pursuant to the mowing licence including checking hedges and fences for damage and maintaining the fields in “good heart and condition”. The company could not hinder the licensor's right of occupation of the fields.
The case hinged on whether the property was entirely residential or mixed use (i.e. part residential and part non-residential) for SDLT purposes. The statutory definition of 'residential property' includes dwellings and land that is of forms part of the garden or grounds of such dwellings. If the property was entirely residential, the higher residential SDLT rates would apply to the purchase of it whereas, if the property was considered mixed use, the lower non-residential SDLT rates would apply.
There have been several SDLT cases on the meaning of 'grounds' and the FTT outlined a summary of the factors derived from previous cases to be considered on the point. These included – (a) there must be a connection between the garden or grounds and the dwelling; (b) contiguity is important, grounds should be adjacent to or surround the dwelling; (c) it is not necessary that the garden or grounds be needed for “reasonable enjoyment” of the dwelling having regard to its size and nature; and (d) land will not form part of the “grounds” of a dwelling if it is used or occupied for a purpose separate from and unconnected with the dwelling.
The taxpayer's argued that the fields were used for a commercial purpose at the time he acquired the property and that they had a distinct purpose unconnected with the main house.
The FTT found that the main benefit to the previous owner of the property from the mowing licence was not financial and instead, was the fact that the fields were retained in a good state of maintenance and did not become wild and overgrown. Surprisingly, the FTT did not consider that the long-standing commercial use of the fields for mowing activities to be a factor which assisted the taxpayer or one which prevented there from being a connection between the fields and the main house. The FTT took the view that a use that keeps land well maintained is consistent with that land functioning as an appendage to a dwelling. The size of the fields, although extensive, were not considered to be disproportionate in the context of the property as a whole and on balance, the FTT considered that the fields were grounds of the dwelling and that the whole property was residential for SDLT purposes.
