Woodland as Residential Property for SDLT: Mihalakis Michael v HMRC

This case of Mihalakis Michael & Dora Michael v. HMRC decided by the First-tier Tribunal (FTT) on 2 April 2024 addressed whether woodland purchased with a dwelling house constituted residential property for Stamp Duty Land Tax purposes (SDLT) under section 116(1)(b) of the Finance Act 2003 (the “Act”). 

The appellants purchased a property that comprised a house with five bedrooms and a garden of approximately half an acre together with 3.4 acres of woodland. The property was registered under a single title. The woodland was overgrown, largely inaccessible, bordered by a public bridle path, and separated from the garden by close board fencing. The appellants contended the woodland provided no privacy or security and served no function for the dwelling. They claimed a refund of SDLT, arguing the property was mixed residential and non-residential. HMRC refused, concluding the entire property was residential. HMRC refused the claim for relief, maintaining that the entire property constituted residential property for SDLT purposes. 

The FTT dismissed the appeal. Judge Williams applied the multi factorial test from Hyman and Goodfellow, considering historic use, layout, proximity, extent, legal constraints, common ownership, contiguity, functionality, and unconnected purpose.  

The FTT found that the woodland had been used only as woodland from acquisition and had no history of separate commercial or other non-residential use. The woodland was contiguous with the main garden and could be seen from the house, enhancing the rural character of the property. Although largely inaccessible, it provided a degree of security and privacy to the property and the half acre. The size was appropriate for a dwelling in a rural location. Critically, the woodland was not used for any purpose separate from the dwelling. The FTT rejected arguments that inaccessibility or lack of active use prevented land from forming grounds. 

In conclusion, the entire property was residential for SDLT purposes, and the residential rates applied to the transaction. The FTT reaffirmed that determining whether land constitutes grounds of a dwelling requires a multi-factorial assessment against established case law principles. Where land is acquired together with a dwelling under a single title, is contiguous, has never been used separately, and is not occupied for an alternative purpose, it will ordinarily be treated as residential property for SDLT purposes, regardless of its physical condition or accessibility. 

Read the full decision of Mihalakis Michael and Dora Michael v HMRC UKFTT 301 (TC) here.