SDLT treatment of equestrian properties
5 May 2023
An equestrian property may be treated as being wholly commercial or residential for the purposes of Stamp Duty Land Tax (SDLT), or, if the facts allow, “mixed-use” (i.e. it comprises both residential and commercial property). If the property is characterised as wholly residential, the residential rates of SDLT will apply. The residential SDLT regime is complex but rates of SDLT can be as high as 17%, depending on the identity of the purchaser and their circumstances. Alternatively, if a property is treated as wholly commercial or mixed use, a purchaser’s SDLT liability will be calculated at the commercial rates rather than residential rates (subject to a potential punitive 15% rate applying in certain circumstances where the purchase price exceeds £500,000 and, broadly speaking, the purchaser is a company). The SDLT commercial rates range from 0% (first £150k), 2% (next £100k), and then 5% (on remaining consideration over £250k). The correct SDLT position will depend on the precise underlying facts and the nature of the property being acquired.
Where the equestrian property in question involves a residential element, it is important to give this issue some thought. The application of commercial rates could potentially reduce a purchaser’s SDLT liability when compared to the residential SDLT regime. For example, if an individual UK resident who owns no residential property anywhere in the world acquired a property comprising a residential dwelling and equestrian facilities for £1,500,000, their SDLT liability would be £91,250 if the standard residential rates of SDLT applied. However, if the property could reasonably be classified as mixed-use for SDLT purposes (due, for example, to the equestrian facilities being used as part of an ongoing commercial business), then the SDLT liability would be calculated by applying the non-residential rates of SDLT. This would reduce the liability to £64,500, producing a saving of £26,750 compared to the wholly residential position. Although not all dwellings with equine facilities will satisfy the definition of mixed-use, the potential savings mean that it is generally advisable to consider the situation and determine how the property is being used.
For SDLT purposes, “residential property” is any land and buildings either (i) used as a dwelling; (ii) suitable for use as a dwelling; or (iii) in the process of being constructed or adapted for use as a dwelling. If a property meets any one of these three separate tests it will be treated as residential property, as will any garden or grounds belonging to it (including any building or structure on such garden or grounds) and any interests or rights attaching to it. Equine facilities such as paddocks and stables are often sold alongside residential property and can be used either by the seller for their personal use, or as part of a genuine commercial business. The presence of equine facilities alone will not automatically make a property mixed-use for the purposes of SDLT.
Where a residential property is being purchased together with equine facilities and the equine facilities are being used commercially, however, this part of the property would fall outside the SDLT definition of residential property and would be classified as mixed-use. Evidencing this can sometimes be difficult, however, as commercial arrangements relating to equine facilities can often be informal. If there is a lack of evidence of genuine commercial use there is a higher risk that HMRC could successfully argue that the land in question is residential, with the result that the entire transaction is subject to the residential SDLT rates. It is therefore important to understand the tests HMRC could apply if you file your SDLT return on a mixed-use basis and HMRC open a compliance check. We have specialists at Birketts who can raise enquiries to try to determine the correct classification of the land you are purchasing.
The SDLT mixed-use assessment considers the nature of the land and the seller’s use of the property on the effective date of the transaction. There are a multitude of factors to consider when determining whether a property is mixed-use for SDLT, and the analysis should be undertaken on a case-by-case basis. Purchasers, and their advisers, must undertake a balancing exercise; weighing up these various factors to determine whether there is sufficient commercial activity at a property for it to reasonably be classified as mixed-use for SDLT. If a property is purchased from a seller who uses their stables and paddocks for their own private equestrian purposes, then it is likely that there will be insufficient evidence of commercial use to remove the property from the definition of residential property above. Given that there is greater scope for equestrian properties to contain elements of both residential and commercial use, parties to such transactions would be well advised to be prepared to ask (or answer) questions aimed at determining the correct SDLT classification. Birketts can assist with this.
Where a seller has used the property as part of an equestrian business, it is important for a buyer to obtain as much evidence of that commercial use as possible. Documents such as business accounts and leases/licences for the use of the land and equine facilities can assist the argument that a property is mixed-use for SDLT. However, the extent of the commercial use may not be properly documented when purchasing equestrian properties. By way of an example, in the case of livery yards, it is common that no written livery agreements exist and, instead, the yard simply relies on verbal agreements with its liveries, even though there is a genuine commercial operation being undertaken at the property. Whilst there may be a genuine basis for a mixed-use filing in such circumstances, the case would be stronger (in the event of an HMRC investigation) if there was written evidence of the commercial activities at the property. In the absence of written agreements, we would suggest taking photos (pre-purchase) demonstrating what takes place on the property and, in addition, consider obtaining supporting statements from the seller and perhaps even third parties using the facilities.
As such, if you are a purchaser of equestrian property you may want to scrutinise this issue closely. If you are a seller of equestrian property, you may be asked to supply evidence of any commercial use and the absence of this may impact on the progression of the transaction. Having good business records in place could help move a transaction forward more efficiently. Indeed, if business information is readily available, it may be sensible to make reference to this in the sales pack so that the potential SDLT saving is taken into account when a would-be buyer makes an offer (although it should be for the buyer’s advisers to advise in relation to the SDLT treatment rather than the seller).
Changes to the mixed-use regime are being consulted on currently. If changes are implemented it may result in the need to apportion the purchase price between the residential and commercial elements for SDLT purposes, rather than applying the non-residential SDLT rates to the whole purchase. Nevertheless, documentary evidence to show use of the commercial parts will still be helpful.
Commercially, we would advise the operator of any equestrian business to ensure that written agreements are in place, not least to formally document the terms of occupation, the livery fee or rent payable and how the occupation can be brought to an end. However, in addition to these commercial benefits, having documentation in place may be helpful when disposing of an equestrian property. If you are considering selling or buying an equestrian property, our specialist Equine Team can talk you though the preparations needed before marketing an equestrian property or the equine specific points when looking to buy. If you have particular queries or concerns regarding SDLT matters, we have a dedicated Corporate Tax team who can advise on such matters and provide advice on the best filing position available to you. Alternatively, if you are simply operating an equestrian business and need assistance documenting your commercial arrangements, please do get in touch.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2023.