How a paddock helped couple win £161k stamp duty battle with HMRC

A couple have won a three-year battle with the taxman over a £161,250 stamp duty bill after successfully arguing that their paddock was not residential land.

Taher and Zhara Suterwalla bought a £3.6 million, seven-bedroom house with a swimming pool, paddock and tennis court near Henley-on-Thames in December 2020. When they paid stamp duty they declared the property was “mixed use” — partly residential and partly non-residential — which meant they paid a lower rate.

In England and Northern Ireland stamp duty on non-residential or mixed-use properties is charged at 2 per cent of the property value between £150,001 and £250,000 and 5 per cent on anything above that. For properties that are entirely residential, buyers normally pay 5 per cent stamp duty on the value between £250,001 and £925,000; 10 per cent between £925,000 and £1.5 million and 12 per cent on anything above that.

The Suterwallas bought their home in 2020 during the Covid stamp duty holiday when the tax-free allowance was raised to £500,000 to stimulate the housing market. They paid £169,500 in stamp duty. In August of 2021 HM Revenue & Customs said they should have paid £330,750 because the property was entirely residential — an extra £161,250.

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The Suterwallas argued that they qualified for the lower rate because their paddock was non-residential land. On the day they bought the property they granted a one-year lease to their neighbour, to graze two horses in the paddock, charging them £1,000.

The couple challenged the HMRC bill and took their case to the first-tier tax tribunal in 2022. It ruled in their favour in 2023. Under the Finance Act 2003 a building which someone lives in, or which is being adapted to be lived in, and land that forms part of the garden or grounds, would be considered residential property. The tribunal decided that the paddock was separate from the grounds of the main house, and so the property had a mixed use.

The paddock was deemed to be separate because of the commercial grazing lease and also because it was separated from the tennis court by a hedge and was not visible from the house or gardens. The title deed for the paddock was listed separately from the deed for the house and grounds on the Land Registry, which records the ownership of land and property in England and Wales.

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HMRC lost its appeal against the decision in the upper tribunal last week. Judges Greg Sinfield and Ashley Greenbank ruled that there were not strong enough grounds to overturn the first-tier tribunal’s decision. Sean Randall, a tax adviser, said: “This was a lucky result for the property owners. There are very few cases like this where the taxpayer has won.”

Stephanie Sharpe from the accountancy firm Moore Kingston Smith said: “HMRC does not generally want houses and elaborate grounds being counted as a mixed-use purchase and benefiting from lower rates of stamp duty. It is hard to convince the taxman that paddocks and the like are not just part of a fancy garden.”

HMRC said it was “carefully considering the judgment”.