HMRC SDLT: SDLTM00450 – Scope: what is chargeable: land transactions: garden or grounds – historic and future use

Principles and Concepts of Chargeable Land Transactions

This section of the HMRC internal manual outlines the scope of chargeable land transactions concerning gardens or grounds, focusing on their historic and future use. Key principles and concepts include:

• Definition of what constitutes a chargeable land transaction.
• Criteria for determining the chargeability of gardens or grounds.
• Consideration of both historic and future use in assessing chargeability.
• Guidance on compliance with HMRC regulations.

Understanding Garden and Grounds for Land Transactions

Assessing Land’s Status

When determining whether a piece of land is considered as garden or grounds during a land transaction, it is essential to evaluate its status at the time of the transaction. This is known as the ‘time of the land transaction.’ However, it is important to realise that this does not mean only the current use of the land has to be taken into account. The legislation’s goal is to capture the true relationship between the land and the building at the time of the transaction.

– If the building falls under section 116 (1) (a) of the Finance Act 2003 (FA2003) during the transaction, the historical use of the land must be considered.
– Understanding how the land has been traditionally or regularly used is key to determining its status.

Importance of Historical Use

To establish the true relationship of the land to the building, it is necessary to consider its habitual use. This can involve looking for patterns in use, such as:

– Customary use that has occurred over a significant period.
– Regular or continued use of the land.

However, it is vital to note that:

– Use that seems temporary or part of a contrived situation may not accurately represent the true relationship between the land and the building.

If a buyer wishes to rely on the historical use of land that is not being used in that manner at the time of the transaction, they need to keep evidence of that previous use. This evidence must be available upon request related to the relevant Stamp Duty Land Tax (SDLT) return.

– It’s unnecessary to submit evidence to HM Revenue and Customs (HMRC) when filing the SDLT return initially.

The Role of Future Use

While past usage of the land is significant in assessing its status, future use is not relevant. The buyer’s plans for how they intend to use the land have no bearing on the classification of the land as garden or grounds at the time of purchase.

– This means that the same piece of land could be classified as ‘garden or grounds’ in one sale but not in another sale conducted at a different time.

Example of Land Classification

To illustrate this principle, let’s consider an example involving two different purchasers.

– Purchaser A: Person A buys a garden that is separate from a dwelling. At the time of purchase, the garden is being used by the residents of the dwelling (the vendor) as a garden. Thus, under the current circumstances, this land is categorised as residential property, regardless of Person A’s intentions to use it for business purposes.
– Subsequent Sale: Later, when Person A decides to sell the same land, the situation may have changed. If Person A has since stopped using the land as a garden and the land is being used for non-residential purposes, it can then be classified differently based on the circumstances at that future sale.

Key Considerations for Buyers

When navigating land transactions, buyers should keep in mind the following points:

– Assess Historical Use Thoroughly: Determine how the land has been used historically to support claims about its status. Look for patterns and habitual uses over time.

– Gather Supporting Evidence: If you plan to depend on historical use, ensure you have the necessary evidence on hand, ready to provide to HMRC if requested.

– Understand the Implications of Future Use: Recognise that your future plans for the land do not affect its classification at the time of the transaction.

– Stay Informed About Changing Status: Be aware that the classification of land can change over time based on its use. This understanding is crucial if you plan on selling the land in the future.

Conclusion

Land transactions, particularly those involving garden or grounds, can be intricate, requiring a thorough understanding of historical and current land use. By focusing on historical usage and gathering sufficient evidence, buyers can navigate SDLT implications more effectively. Although future plans for the land do not influence its current classification, remaining aware of the changing nature of land use will assist buyers in making informed decisions.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM00450 – Scope: what is chargeable: land transactions: garden or grounds – historic and future use

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