Buying a house and land?
On the home front, if your family is growing or you want a change of scenery and you are considering purchasing a larger property, perhaps with a paddock and or land, you will already be aware that you will have to pay Stamp Duty Land Tax on top of the purchase price.
What you may not be aware of is that there are differing rates of SDLT depending upon whether the value attributable to the property is solely residential or whether it is to be counted as a mixed-use property.
When is a paddock part of a house and when is it part of a mixed-use property?
The difference in tax payable can be significant.
Buyers should be aware that Stamp Duty Land Tax calculations are now becoming more subjective. A recent First Tier Tribunal decision fell in favour of HMRC whereby a house with grazing paddock was all taxed at the higher residential rate (rather than the more advantageous mixed property use rate) because of the nature of the relationship of the house and the paddock. In this instance, even though a third party’s pony grazed the paddock, it was decided that the paddock was essentially used as part of the grounds of the house, rather than as an agricultural field. There were other factors that were taken into consideration, but this was the main “takeaway” from this case.
The decision effectively qualified the principles used in assessing whether land constitutes “Grounds;” helpful when trying to identify which rate of SDLT a purchaser will have to pay as part of the overall transaction. There is a long list of factors to take into consideration when determining whether land is actually “Grounds” of a house, and each case will be considered in light of its own individual characteristics.
In the case concerned, there was a paddock adjoining the house and gardens, which was used for grazing purposes by a third party and for which there was written agreement that commenced at the time of the purchase. The tribunal decided that when taking all the facts into consideration, that the paddock nonetheless formed part of the grounds of this house and hence the higher residential rate applied.
Of the list of points given by the tribunal, one important principle for deciding was this: “Land will not be part of the grounds of a dwelling if it is used or occupied for a purpose separate from and unconnected to the dwelling.” Other points muted included, privacy, security, accessibility, contiguity and whether there is a connection between the properties.
Prudent buyers would be well advised to consult with their land agent, accountant and/or solicitor in order to get a better understanding of how their purchase might be treated for tax purposes and in order that they are not confronted by unexpected costs. Of course, as each purchase is case specific, HMRC will no doubt still differ in opinion on the odd occasion.
Contact our Rural Professional offices at Standerwick (01373 831010) and Glastonbury (01458 834288).