Mixed-use rates of SDLT did not apply to property purchase with communal garden

In Nael Khatoun v HMRC [2021] TC08085, the First Tier Tribunal (FTT) found that the purchase of a residential property with access to a communal garden was subject to residential rates of Stamp Duty Land Tax (SDLT) and not mixed-use rates.

• The property was purchased for £9.375m.
• On the same day, the purchaser signed agreements with a separate entity which gave him access to a communal garden for an annual rent.
• Mr Khatoun submitted an SDLT return self-assessing SDLT of £1.32m on the basis that the Residential rates applied to the purchased property.
• An amended return was then submitted on the basis of the Rates for mixed-use property applied due to the right to use the communal garden. This would have resulted in a repayment of £861,750 of SDLT.
• HMRC raised an enquiry into the SDLT return.
• HMRC issued a Closure notice on the basis that SDLT was due at the residential rates, rejecting the claim for a refund.
• Mr Khatoun requested a Statutory review which upheld HMRC’s decision.
• Mr Khatoun Appealed to the tribunal.

The FTT dismissed the appeal finding the transaction should be subject to SDLT at residential rates as:

• The acquisition of rights to enter and use the communal garden did not qualify as the acquisition of a 'chargeable interest' in land, it was an exempt-interest as it was a licence to use land. 
• The acquisition of the rights to use the garden was not a Linked transaction with the acquisition of the residential property as the vendors of property and garden were different.
• The right to access the garden was residential property as it subsisted for the benefit of the dwelling house.

Useful guides on this topic

SDLT: At a glance, Stamp Duty Land Tax, rates & allowances 
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?

SDLT: Residential property & dwellings
What is residential property for Stamp Duty Land Tax (SDLT)? What tax rate applies? What garden and grounds are subject to higher rates of SDLT?

Closure notices 
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

SDLT: Linked transactions
What are Linked Transactions? When does do Linked Transaction rules apply for SDLT? How do I calculate SDLT on a linked transaction?

External links

Nael Khatoun v HMRC [2021] TC0808