In Brandbros Ltd v HMRC  UKFTT 157 (TC), the First-tier Tribunal dismissed a taxpayer's appeal against a closure notice refusing an SDLT refund, as the grant of a commercial lease over a garage at the rear of the property on the same day as completion of its purchase did not render the property mixed residential and non-residential for SDLT purposes.
The First-tier Tribunal stated the mixed SDLT rates did not apply where a lease was granted over a garage at the rear of a property on the day of completion.
The taxpayer paid SDLT on the basis that the property was residential. Subsequently, it sought to amend the SDLT return and claim a refund, claiming that the property was mixed residential and non-residential because the purchaser granted a commercial lease of the garage on the day of completion.
The tribunal dismissed the taxpayer's argument that the land should be classified as mixed use as the lease was granted on the effective date of the transaction and that, as per HMRC guidance, the use of the land at the effective date was determinative. The tribunal held the relevant legislation, which provides that the garden and grounds of a dwelling (and any buildings or structures thereon) are residential, was not limited to areas that are used for residential purposes.
The tribunal also concluded that, as SDLT is a transactional tax, the grant of the lease later on the same day had no effect on the SDLT treatment of the purchase, thereby dismissing the taxpayer's argument that the position at the end of the effective date should be considered.
Although the tribunal's transactional analysis gives useful clarity on the meaning of "the effective date", the decision results in uncertainty over the correct classification of grounds that are used for a separate commercial purpose and, in particular, may affect acquisitions of dwellings with grounds subject to an existing commercial lease from which a business is conducted.
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