The First-instance Tribunal (FiT) ruled on a specific Stamp Duty Land Tax (SDLT) dispute, finding that the inclusion of a non-residential interest within a primarily residential property purchase qualified the entire acquisition for the lower, “mixed-use” SDLT rates.

Facts:

On 14 January 2022, Mr. and Mrs. Sehgal entered into an agreement with Grosvenor Square Ltd. and Twenty Grosvenor Square Residential Ltd. to purchase a fourth-floor apartment alongside a car parking space and a storage unit. A single price of £18,250,000 was paid for all three provisions under one contract. 

Although the apartment and car parking space were transferred by the assignment of long leases (over 900 years) on a single TR1 form, the storage unit was acquired separately through the grant of a new, distinct 20-year lease. All three interests were registered under separate Land Registry titles. The storage unit itself was small, and its lease contained specific restrictions, given that its use was limited to private residential storage ancillary to the occupation of an apartment within the building. Further, it could only be assigned or underlet to an existing owner or simultaneous purchaser of another residential apartment within the building. Crucially, the storage unit lease was a short-term interest and separate from the long-term apartment lease.

Initially, the Sehgals paid SDLT at the higher residential rates. They later sought a refund, claiming that the acquisition was mixed-use. Their original argument focused on communal amenities but was eventually abandoned. The final, amended grounds of appeal rested entirely on the argument that the storage unit constituted a separate, non-residential interest, thereby making the entire linked acquisition subject to the lower, non-residential SDLT rates. HMRC challenged the FiT’s jurisdiction to hear this new argument, but the FiT rejected this challenge, setting the stage for the substantive legal issue.

Decision: 

The FiT allowed the appeal and concluded that the acquisition was not entirely of residential property and, therefore, the lower, non-residential rates of SDLT (Table B) applied to the transaction. This decision meant that Mr. and Mrs. Sehgal were entitled to a refund of the £1,749,250 in SDLT that they had paid under the higher residential rates. The core reason was the finding that the storage unit lease did not constitute “residential property” under Section 116(1)(c) of the Financial Act (FA) 2003, thereby rendering the overall transaction “mixed-use”.

The FiT held that the acquisitions of the apartment and the storage unit were separate land transactions as they involved disparate legal interests in separate pieces of land, acquired under distinct legal instruments (leases), and could theoretically be acquired by different persons. Since the transactions were acquired under a single contract, for a single price, on the same day, they were deemed “linked transactions” under Section 108 (1) of FA 2003.

Even if the acquisitions were a single transaction, the storage unit lease was not “an interest or right appurtenant or pertaining to” the apartment lease under Section 43(6) of the FA 2003. The storage unit lease failed this test because it was a separate leasehold estate (and not an easement), had its own title, and could be assigned independently of the apartment.

Implications:

The case reinforces the crucial financial importance of the “mixed-use” distinction in SDLT. If an acquisition includes even a small element that is demonstrably non-residential, the entire transaction is charged at much lower non-residential rates (Table B), leading to massive savings on high-value properties. 

The FiT established a clear boundary between an interest that is merely acquired with a dwelling and one that subsists for the benefit of a dwelling. An interest must be legally annexed or inseparable from the specific dwelling (RE Sexton), and its benefit must run with the property itself. If an interest, such as a separate leasehold estate for a storage unit, has independent assignability (even if restricted to other residents in the block) and a separate legal title, it is likely to be classified as a non-residential property.

The case highlights that the legal structure of the transaction (e.g., separate leases, separate titles) overrides the subjective intentions of the buyer and seller (i.e., buying them together in one contract for a single price) or their practical use (e.g., private residential storage).