Flat tenants often enjoy a right to use communal gardens – but what effect do such arrangements have in terms of liability to Stamp Duty Land Tax (SDLT)? In an important test case, a tax tribunal pondered that issue in the context of one of London’s famously exclusive garden squares.
Two sisters purchased the long lease of a flat in Onslow Gardens, South Kensington. The lease conferred on them a right – or, in legal terms, an easement – to make use of the square’s communal gardens. On acquiring the flat, they paid SDLT on the basis that the property was wholly residential.
However, they subsequently asserted that this was a misclassification and sought a rebate in excess of £85,000. They contended that their acquisition included non-residential property – the gardens easement – and that SDLT was therefore payable at a reduced rate. HM Revenue and Customs, however, took a contrary view and refused to grant a refund.
Challenging that decision, the sisters argued that, because the gardens are used in common with other occupants of the square, they are not residential in nature. The gardens, they pointed out, do not belong to them exclusively. They do not confer a benefit solely on them, nor are they exclusively under their control. They asserted that the acquisition of the flat together with an easement over non-residential land took the acquisition outside the statutory definition of residential property.
Ruling on the matter, the First-tier Tribunal (FTT) accepted that the gardens – which do not adjoin the flat – do not form part of the property’s garden or grounds. It found, however, that the main subject matter of the land transaction was the flat alone. The easement is appurtenant to the leasehold interest in the flat. Both having been acquired at the same time, the easement formed an inseparable part of, and was subsumed within, the overall transaction.
The FTT noted that the gardens easement renders the flat a more attractive and convenient property. Passing from tenant to tenant each time the flat changes hands, it is conferred by the lease and exists for the benefit of the flat, rather than individual tenants. It has no independent existence other than by reference to the lease and enables tenants to exercise an individual right to use a communal facility. Dismissing the appeal, the FTT found that the sisters were liable to SDLT on the basis that the property they acquired was wholly residential.