Commercial Use Given Residential Status in Tretyakov v. HMRC

This appeal before the First-tier Tribunal (FTT) brings clarity on when the commercial part of a mixed-use property can still be considered “suitable for use as a dwelling” under Section 116(1)(a) of the Finance Act 2003. Resolving this point was essential due to the substantial tax consequences: mixed-use properties qualify for more favourable non-residential Stamp Duty Land Tax (SDLT) rates, whereas residential rates are significantly higher.

Here, the appellant had filed his SDLT return treating the property as mixed-use, with the basis for appellant’s argument being the commercial use of the front garage area, which involved storage and basic assembly work.  

The FTT dismissed the appeal, holding that despite commercial use of part of the ground floor, the property retained its essential character as a dwelling.  As the FTT observed, “It cannot be said that just because a garage is used for commercial purposes, it is not suitable for use as part of the dwelling”. Furthermore, the FTT noted that no modification or adaptation would have been needed for the ground floor to be used in its entirety as part of the dwelling given that there was no plant or machinery associated with the commercial use.

In reaching its decision, the FTT applied a multi-factorial test from Mudan v HMRC [2024] UKUT 307, focusing on whether the ground floor possessed “the essential characteristics and nature of a dwelling.” The property had undergone complete renovation and was consistently marketed as a “high-end private residence.” The ground floor contained residential amenities including garage, bar, games room, wine cellar, and sauna, all of which were physically integrated with the upper floors through internal staircases and used personally by the occupants.

Accordingly, the FTT ruled against the appellant, holding that the planning permission for light industrial use and the payment of business rates can be given limited weight against the residential characteristics of the property.

Read the full decision of Andrei Tretyakov v. HMRC [2024] UKFTT 1064 (TC) here.