When is your garden not part of your home? When there is a tax benefit of course!

In a recent case heard at Tribunal (Bonsu v HMRC), a taxpayer argued that a purchase of their main home blurred the lines between residential and non-residential use. How you may ask? Bonsu claimed that the West London flat came with an intriguing perk: the right to use a communal garden. This seemingly innocuous detail soon became the crux of a tax dispute with HMRC. The flat itself was a comfortable home, however, the communal garden added an extra layer of complexity for stamp duty land tax (SDLT) purposes. The question asked was that of, was it merely a pleasant green space for residents to enjoy, or did it have a more substantial purpose?

SDLT rates are generally more favourable for non-residential acquisitions or mixed-use transactions than for those purely residential properties. The Bonsus submitted an amended SDLT return to reclaim £23,000 of tax by filing on the basis that the garden would be deemed a non-residential part of the property, however HMRC issued an enquiry and subsequent closure notice on their decision that the garden was part of the flat and to be used as such, and therefore to be considered residential for SDLT purposes. 

As the Bonsus sought to challenge this further, their legal team argued in court that the easement for the use of the communal gardens was to be considered a ‘main subject matter’ and a chargeable interest in its own right. This argument suggests that the residential property and easement on the garden should be considered as a transaction consisting of two chargeable acquisitions. Bonsu further noted that the communal garden was for the benefit of residential and commercial properties and therefore the gardens would be considered mixed-use in its own right. These attributes collectively would mean that the acquisition of the residential property and easement over the communal gardens would be subject to SDLT at the lower non-residential rates, the Bonsus claimed. 

However, HMRC contended that the communal garden was ancillary to the flat and therefore an extension of the residential acquisition. HMRC substantiated its argument with the fact that the entry at the Land Registry did not mention any reference to the easement, the right to use the communal garden was acquired as part of the acquisition of the flat, and as the easement subsists for the benefit of the flat, the residential property is the only main subject matter in the transaction. These comments concluded that the higher residential rates of SDLT should apply.

The judge reviewed the arguments and considered the property’s usage, the intent behind the acquisition, and the practical impact of the communal garden. Ultimately the judge ruled in favour of HMRC and the transaction was deemed wholly residential, and the SDLT liability was adjusted accordingly.

Perhaps in taking a common-sense approach, one could see that a garden for use as part of a residential property acquisition, however with the intricacies to SDLT legislation, it’s always best to check. This case sees another win for HMRC in the SDLT court room, and with the abolition of multiple dwellings relief announced last week in the Budget, HMRC is clamping down on those looking to misuse the rules.