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ANDREI TRETYAKOV V HMRC TC/2023/16164

Case ANDREI TRETYAKOV V HMRC was an SDLT mixed-use appeal, i.e., whether the property in question was of mixed residential and non-residential use. The additional SDLT if the property was wholly residential was £484,250. It might be thought that genuine commercial use of a part of a building where the other parts were used for residential purposes should mean that there was automatically a mixed-use property for SDLT. However, the FTT said that this was not the case when at [46] the FTT said:

“We do not, however, accept that the mere fact that the property has been used for commercial purposes itself means that it is not suitable for use as a dwelling. It is simply one of the factors to take into account.”

Applying this reasoning, the FTT then said this about the property in question at [85]:

“Although a part of the ground floor of the Bacon Factory was used for commercial purposes at the relevant date, the property, taken as a whole, was either used as a dwelling or suitable for use as a dwelling and therefore comprised residential property in its entirety. The higher rates of SDLT applied by HMRC in their closure notice are therefore due and this appeal is dismissed.”

The lack of planning permission for residential use, the payment of business rates, a separate EPC for the area of the building in commercial use at the effective date and the use of the standard commercial sale contract terms did not prevent the FTT from deciding that taken as a whole, the building concerned was suitable for use as a dwelling and thus residential property in its entirety.

HMRC will be emboldened by this decision, and advisers should, therefore, take note that genuine commercial use of part of a building at the effective date will not necessarily prevent the building as a whole from being regarded as suitable for use as a dwelling in appropriate cases.

Indeed, the logic of this decision could also apply to a building that was used entirely for commercial purposes at the effective date, especially where no modification or adaptation was required to convert to residential use (although in saying this, the FTT overlooked the absence of planning permission and building regulations approval for residential occupation). This decision adds uncertainty to questions of SDLT mixed-use because even when there is genuine commercial use, the matter of suitability for use as a dwelling will have to be evaluated by the FTT, where the taxpayer and HMRC cannot agree.

You can read the full decision here.

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