Can a House Purchase Qualify for Mixed-Use SDLT Because an Underground Garage Is Let Commercially?

Introduction

Buyers sometimes ask whether a residential purchase can be taxed at non-residential SDLT rates because part of the property is used for a business or is let to a third party. A common example is a house with a garage, parking space or storage area that is leased out separately.

This matters because if a transaction is genuinely “mixed-use”, the non-residential SDLT rates can apply to the whole price. But the legal test is strict. In practice, the result often turns on whether the allegedly non-residential part is truly separate from the dwelling, both legally and factually.

This article explains how the rules apply where a buyer acquires a townhouse together with an underground garage space that is already let on a long lease to a company, and also acquires a separate nearby garage for personal use.

The Question

A buyer exchanged contracts on a townhouse. Beneath the house is an underground garage or parking area. That space is already let on a long-term basis to a company, and the buyer will continue as landlord after completion.

The buyer later clarified that:

• the underground garage is directly beneath the house;
• it forms part of the same freehold title as the dwelling;
• the buyer does not have direct access to it from the house;
• it is part of a larger underground parking area beneath several townhouses; and
• the buyer is also taking a lease of another nearby garage for personal use.

The issue is whether those facts create a credible basis for mixed-use SDLT treatment, so that non-residential rates apply to the whole transaction.

Nick’s Explanation

Nick’s reasoning changed as the facts became clearer.

On the earlier understanding, the garage space appeared to be held under a separate long leasehold title, legally and physically distinct from the house. On those facts, he considered there was a strong basis for arguing that the parking space was a separate non-residential asset, especially because it was let to a third party and would continue to be held as an income-producing interest.

Once it became clear that the underground garage was actually part of the same freehold title as the townhouse and lay directly beneath it, the position became much weaker.

Nick explained in substance that where land is physically and legally within the same title and curtilage as the dwelling, HMRC will usually argue that it forms part of the residential property, even if part of it is commercially let. He noted that a commercial tenancy is relevant, but it does not automatically convert part of a house purchase into non-residential land.

He also said that the lack of direct access and the fact that the garage is part of a larger shared underground parking structure are helpful facts. They suggest some functional separation from the dwelling. But he identified the main obstacle as the legal structure: the garage remains part of the same freehold title as the house.

In his final view, the safer conclusion was that HMRC would likely treat the whole freehold as residential. A mixed-use argument could still be advanced, but only on relatively uncertain ground and with a real risk of challenge.

The Law

The starting point is section 55 of the Finance Act 2003, which sets the SDLT charge by reference to the nature of the land acquired.

Section 116(1)(a) Finance Act 2003 says that “residential property” includes a building that is used or suitable for use as a dwelling, together with its garden or grounds.

Section 116(2)(a) provides that property which is not residential property is “non-residential property”.

Where a single transaction includes both residential and non-residential property, section 55(1B) Finance Act 2003 applies the non-residential rates to the whole consideration. That is what is commonly called mixed-use treatment.

Paragraph 18(1) of Schedule 4ZA Finance Act 2003 is also relevant because it uses the same residential property concept for the higher rates regime.

In practice, disputes often focus on whether the land in question forms part of the dwelling’s “garden or grounds”, sometimes discussed in terms of curtilage, layout, use and legal relationship to the dwelling.

If the argument instead is that a building was not suitable for use as a dwelling at the effective date, readers should note that the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That case makes clear that “not suitable for use” arguments are harder to sustain than many buyers assume.

Analysis

The analysis can be broken down into four parts.

First, the townhouse is plainly residential property. It is a dwelling within section 116(1)(a).

Second, the nearby garage lease acquired for the buyer’s own use does not help a mixed-use argument. On the facts given, it is simply an additional parking interest acquired with the home for personal residential purposes. That does not introduce a non-residential element.

Third, the commercially let underground garage is the real point of difficulty. The fact that it is let to a company on a long-term basis is helpful to the buyer’s argument because it shows genuine third-party commercial occupation rather than occasional private use. The absence of direct access from the house and the fact that it forms part of a larger shared underground parking area also help. Those features suggest that the space may have some physical and functional independence from the dwelling.

Fourth, however, the strongest factor is likely to be the legal and structural connection with the house. If the underground garage is part of the same freehold title as the townhouse and lies directly beneath it, HMRC are likely to say it remains part of the residential property. In other words, the commercial letting may affect use, but not classification, if the land still forms part of the dwelling and its grounds.

That is why the original version of the facts pointed much more strongly towards mixed-use treatment. A separate leasehold title, separately demised and separately accessed, is far easier to characterise as a distinct non-residential asset. Once that separate title point falls away, the argument becomes significantly weaker.

The buyer could still try to argue that the garage space is sufficiently distinct because:

• it is occupied by a third party under a long commercial arrangement;
• it is not used by the occupants of the house;
• it is part of a larger shared underground structure rather than ordinary domestic parking attached to the home; and
• there may be plans, rights of access and lease terms showing practical independence.

But against that, HMRC would likely argue:

• the garage is physically under the dwelling;
• it is part of the same freehold title;
• it has not been carved out into a separate legal estate acquired independently of the house; and
• commercial occupation of part of a residential title does not by itself convert that part into non-residential property.

On balance, that makes the mixed-use position arguable but not strong.

Outcome

The practical conclusion is that this transaction is more likely than not to be treated as wholly residential for SDLT purposes.

If the underground garage had been acquired under a separate long leasehold title, legally and physically distinct from the house, there would have been a much stronger basis for mixed-use treatment. But where the garage sits directly beneath the house and forms part of the same freehold title, the commercial letting alone is unlikely to be enough.

The separate nearby garage for the buyer’s own use does not turn the purchase into mixed-use.

Practical Steps

If you are assessing a similar purchase, the key documents and facts to check are:

• the title register and title plan for the house;
• whether the garage or parking space has its own separate title;
• the lease or tenancy terms for the garage space;
• rights of access and whether access is independent of the dwelling;
• whether the space is physically integrated with the house or forms part of a shared structure;
• whether the space is used privately, commercially, or both; and
• whether the contract treats the interests as one asset or distinct assets.

If there is no separate legal title, the mixed-use argument usually becomes much harder. In that situation, anyone considering non-residential rates should make sure the SDLT return position is supported by the plans, lease wording and the exact legal interests being acquired at completion.

If the return is filed on a mixed-use basis, the buyer should be prepared for HMRC scrutiny. If the return is instead filed on a residential basis, any later reclaim would still depend on the legal and factual position at the effective date of the transaction.

Conclusion

A commercially let garage does not automatically make a house purchase mixed-use for SDLT. The decisive question is whether that garage is truly separate from the dwelling in legal and factual terms. Where it remains part of the same freehold title and sits directly under the house, HMRC are likely to treat the whole acquisition as residential.

Legal References Used

• Finance Act 2003, section 55
• Finance Act 2003, section 55(1B)
• Finance Act 2003, section 116(1)(a)
• Finance Act 2003, section 116(2)(a)
• Finance Act 2003, Schedule 4ZA, paragraph 18(1)
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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