A first-tier tribunal has decided a £341,750 stamp duty land tax (SDLT) saving applies in an appeal considering if an otherwise residential property could be considered “mixed use” due to the presence of an electrical substation in its grounds.
The appeal against an SDLT calculation by HM Revenue & Customs (HMRC) concerned a substantial semi-detached building comprising five residential flats in Hampstead, north London, bought by Inngrays Limited for £7.75m in May 2024.
Inngrays Ltd v HMRC came before tribunal judges Michaela Snelders and Noel Barrett at the first-tier tribunal tax chamber.
The purchase included land to the rear of the building with an electrical substation on it. The brick structure is complete with a sign on it which reads “Danger of Death”.
On 11th June 2024, Inngrays submitted a SDLT return treating the acquisition as a mixed-use transaction. The return claimed Multiple Dwellings Relief and SDLT of £377,000 was paid.
Following an enquiry, HMRC concluded that the property was wholly residential and issued a closure notice amending the return, with an additional £341,750 SDLT payable.
The issue for determination by the tribunal was whether the land the substation was built on formed part of the grounds of the dwelling. If it did, the property was entirely residential; and if it did not, it was a mixed-use transaction.
The building containing the flats is freehold but the land occupied by the substation is held under a separate leasehold title currently leased to London Power Networks (LPN). The rent payable under the Substation Lease is £1,250 a year.
Michael Collins, instructed by McCarthy Denning, acted as counsel for Inngrays; while Fiona Man appeared as litigator of HMRC’ Solicitor’s Office.
Collins argued on behalf of Inngrays that the land does not form the “grounds” of a dwelling if it is used for a purpose separate from or unconnected with the dwelling.
Man for HMRC accepted that the substation was subject to an LPN lease but that neither the existence of third-party rights nor a commercial use is determinative of whether land forms part of the grounds of a dwelling. HMRC contended that the substation was situated on land forming part of the grounds of the dwelling.
The tribunal found for the appellant Inngrays and ruled that the SDLT paid on the building as a “mixed-use” property was correct.
The judges concluded: “Taking all relevant factors into account, we conclude that the Substation has a self-standing commercial function which is separate from, and unconnected with, the use of the flats as dwellings. It does not form part of the grounds of the Property for the purposes of section 116(1)(b). The transaction therefore included land that was not residential property. It follows that the acquisition was a mixed-use transaction for SDLT purposes.”
