Purchase of an apartment and storage unit was a mixed-use acquisition for SDLT purposes

In Raj Sehgal and another v HMRC [2025] UKFTT 1439 (TC), the First-tier Tribunal (FTT) held that a storage unit acquired alongside a luxury apartment were separate land transactions and therefore the mixed/non-residential rates of SDLT applied to the purchase.

Background

Raj and Varsha Sehgal (the Purchasers) acquired a fourth-floor apartment in 20 Grosvenor Square, London, together with a car parking space and a basement storage unit, under a single contract for a single premium of £18.25m. The apartment and parking space were acquired via the assignment of long leases (each exceeding 900 years), while the storage unit was acquired under a separate 20-year lease, granted on the same day and registered under a separate Land Registry title.

A single SDLT return was filed on the basis that the acquisition was wholly residential and subject to the higher rates of SDLT. The Purchasers later sent a letter to HMRC amending the SDLT return and requesting a refund of £1.75m, contending that the transaction attracted non-residential (mixed-use) rates because there was a right to use shared amenities, such as a communal garden, gym, spa and children's play area (the Refund Claim). 

HMRC issued a closure notice refusing the Refund Claim, and the Purchasers appealed the closure notice.

At HMRC's internal review stage, the Purchasers raised an additional argument that non-residential rates applied because the transactions included the storage unit lease, which was not residential. 

HMRC rejected the claim on the basis that the transaction was wholly residential, asserting that the storage unit was not a separate non-residential interest, but was appurtenant to, or subsisted for the benefit of, the apartment.

The Purchasers appealed to the FTT.

FTT's decision

The appeal was allowed.

Nature of the transaction

The FTT found that the acquisition of the apartment and the acquisition of the storage unit were separate land transactions, albeit linked. Each involved a distinct legal interest in separate land which could, in principle, have been acquired by different people. The fact that they were acquired under a single contract for a single price, was not determinative for SDLT purposes.

In any event, even if there had been a single transaction, the storage unit lease was not “an interest or right appurtenant or pertaining” to the apartment, for the purposes of section 43(6), Finance Act 2003. Unlike easements over communal areas considered in earlier cases, the storage unit lease had an independent legal existence. It was granted under a separate lease, could be assigned or underlet independently (subject to restrictions), and did not automatically pass with the apartment.

Residential property

The FTT also rejected HMRC’s argument that the storage unit constituted residential property for the purposes of section 116(1)(c), Finance Act 2003. Although its use was restricted to private residential storage, the lease did not subsist for the benefit of the apartment itself, but for the benefit of whoever held the storage unit lease from time to time. The storage unit could benefit different apartments, or none at all, and therefore lacked the necessary identification with the dwelling.

Accordingly, as the relevant land included non-residential property, the lower non-residential SDLT rates applied and the Purchasers were entitled to a refund of £1.75m.

Comment

The FTT commented, at paragraph 167 of its decision, that this appeared to be a surprising result given the relatively small value of the storage unit. However, the SDLT legislation unambiguously provides that residential rates only apply if the relevant land consists entirely of residential property, the FTT considered that Parliament would not have used this word unless this was the intended outcome.

This decision is significant and will be of wider interest due to the significant difference between residential and non-residential rates of SDLT. Given the number of properties which are sold (or could be sold) with storage units, it would not be surprising if HMRC seek to appeal this decision to the Upper Tribunal.

The decision can be viewed here.