The case of Harjono & Anor v HMRC , decided by the First tier Tribunal (FTT), addresses a recurring and an important question under the Stamp Duty Land Tax (SDLT) framework: Whether the land adjacent with the house and garden such as paddocks should also be classified as part of a residential property, or whether certain uses and arrangements render the property “mixed use”. The decision focuses on the interpretation of "grounds of a dwelling" and clarifies how temporary or historical uses of land interact with its ultimate use in determining SDLT liability. While the ruling is not a binding precedent, it offers important guidance on how such distinctions may be approached in practice.
Facts of the Case
On 20 December 2021, Jessica Harjono and Yusdi Santoso (the “Appellants”), purchased a residential property for £2.7 million that included approximately 3 acres of land in total, consisting of the house, garden, and an adjoining paddock of 1.5 acres (together the “Property”). On that same date, the Appellant’s solicitor filed an SDLT return on the basis that the Property was "mixed-use," relying on a grazing agreement with a third party, Zoe Donnelly, to support their claim that the paddock was in commercial use and therefore not part of the residential grounds. The grazing agreement was signed by both parties before the completion of the property purchase on 20 December 2021, but was left undated.
Following the completion of the purchase, Appellant’s solicitor dated the grazing agreement, which described itself as a "Lease." HMRC contended that the grazing agreement was not in place at the effective date and that even if it was, it was a “barter of convenience”, and the paddock was still part of the grounds of the dwelling. The grazing agreement, therefore, was insufficient to render the nature of the Property mixed-use. HMRC asserted that the appellants should therefore pay SDLT at the higher residential rate and issued a closure notice increasing the SDLT due by £113,250.
Issue
The key legal issue was:
Whether a 1.5-acre paddock forming part of the Property purchased by the Appellants should be classified as "grounds" of the dwelling and therefore residential property for SDLT purposes, or whether it was non-residential land due to a grazing agreement, such that the property constituted "mixed use" and should attract the non-residential rates of the SDLT?
Tribunal’s Holding and Reasoning
The Tribunal upheld HMRC’s position and concluded that the paddock formed part of the “grounds” of the dwelling. Accordingly, the Property was classified as entirely residential for SDLT purposes. In reaching its decision, the Tribunal emphasised the following key elements:.
1. The Intermediate vs. Ultimate Use Test
The Tribunal applied a distinction between the intermediate (or temporary) use of land and its ultimate use, holding that while the use at the effective date is relevant, it is not decisive. Instead, greater weight is to be given to the land’s ultimate character and intended function, particularly where that function is residential. The Tribunal observed that even if land is temporarily subject to a commercial use, such as grazing, this does not necessarily preclude it from forming part of the ‘grounds’ of a dwelling. In this case, emphasis was placed on how the paddock was integrated into the property as marketed — a single, contiguous residential lot with the paddock described as enhancing the domestic lifestyle offering. Accordingly, the Tribunal concluded that the paddock was residential in nature, being part of the grounds, despite the existence of the grazing agreement.
2. Commercial Use Analysis
The Tribunal was critical of arguments that equated any market-rent arrangement with a mixed-use classification It remarked “‘Commercial' is a weasel word. In mixed-use situations, it is increasingly being asserted that any letting of part of a Property for a market rent is commercial and, as if by magic, the land leaves the residential pot and turns up in the mixed-use pot. As the cases show, this simplistic analysis is being rejected by the courts.” It emphasized that when looking at the use to which land is put, simply inserting some form of ‘commercial’ agreement between a landowner and a third party does not of itself generate a use which is of significant weight in the multifactorial evaluation. One needs to look through that agreement and consider the end use of the land as well.
The tribunal established that in circumstances where letting is carried out by a third party, the terms of the arrangement between the householder and that party are clearly relevant, but they need to be more than just on "commercial" terms. The arrangements with that party need to be more than just a "bargain of convenience" to carry significant weight. The tribunal held that it will only be once the regularity of that letting tips into active investment/business that it is likely to affect the evaluation to any significant extent.
3. Multifactorial Test Application
The tribunal applied the multifactorial test, conducting a detailed evaluation of specific factors. This included the paddock being consistent with and proportional to the size and nature of the house and garden, the paddock being contiguous with the house and garden, the purchase of house, garden, and the paddock as part of a single land transaction, the land registry record showing that the paddock has been used in conjunction with the house and garden since 2009, the fact that the paddock was a selling point for the house and gardens.
Know more about “Does a Paddock Count as “Grounds” for SDLT?”
Conclusion
The Tribunal dismissed the appeal, holding that the paddock remained part of the residential “grounds” and the higher SDLT rate applied. The ruling serves as a caution against simplistic SDLT planning strategies based on temporary commercial arrangements entered at or around the time of purchase. It clarifies that a market-rent lease does not necessarily remove land from residential classification if its ultimate use aligns with residential enjoyment.
While this decision is from the FTT and therefore not binding on higher courts, it provides significant interpretive guidance. A forthcoming review by the Upper Tribunal may provide further legal clarity, but the multifactorial approach adopted here presents a persuasive framework for assessing residential or mixed-use status of properties with adjacent land.
- Stamp Duty on a Holiday Let Property: How Much Will You Pay - 1 October 2026
- Declaration of Trust Property UK Tax Implication Explained - 1 September 2026
- CGT on Property Title Split: Rates, Reliefs & Planning - 6 August 2026
