SDLT Tribunal Win Highlights Misclassification Risks for Landlords

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SDLT Tribunal Win Highlights Misclassification Risks for Landlords

A newly published First-tier Tribunal decision has drawn fresh attention to how easily Stamp Duty Land Tax (SDLT) can be misapplied when property purchases include multiple components such as parking spaces, garages, or storage units.

The case, Sehgal v Revenue and Customs [2025] UKFTT 1439 (TC), concerned the purchase of an apartment, an allocated car parking space, and a separate basement storage unit.

HMRC treated the entire purchase as wholly residential, applying the higher residential SDLT rates.

• The taxpayers appealed.
• The Tribunal agreed.
• A repayment of £1,749,250 was ordered.

The full written judgment is now published on the National Archives “Find Case Law” website under the official neutral citation [2025] UKFTT 1439 (TC).

This article summarises what is known from the published decision, why the outcome matters, and what property owners should consider in similar circumstances.

What We Know About the Case

Based on the published judgment:

• The appellants purchased an apartment,
• an allocated parking space,
• and a separate storage unit held under a new 20-year lease,
• with each component registered under its own title.

All three were acquired under a single contract for £18,250,000.

HMRC treated the entire transaction as “wholly residential”, applying higher residential SDLT rates.

The Tribunal concluded that:

• the storage unit did not “subsist for the benefit of” the apartment (FA 2003 s.116), and
• therefore did not qualify as “residential property”.

Because the transaction did not consist entirely of residential property, the non-residential SDLT rates applied. The appeal was allowed.

Important Clarification: We Do NOT Know Whether the Appellants Were Landlords

Nothing in the public judgment states:

• that the appellants were landlords,
• that the property was part of a rental portfolio, or
• that it was purchased for investment purposes.

Therefore, we do not describe them as landlords.

The case is nevertheless highly relevant to landlords, because mixed-use SDLT questions frequently arise in portfolios containing flats with garages, stores, parking, ancillary land or multiple titles.

Why This Case Matters for Landlords

Many property purchases involve multiple components, such as:

• garages,
• storage units,
• plant rooms,
• bin stores,
• commercial elements,
• land used for non-residential purposes,
• parking or access rights held under separate titles.

The case highlights a key SDLT principle: If any part of a transaction is non-residential, the entire transaction may fall under the non-residential SDLT rate structure.

Misclassification can lead to substantial overpayments, especially on higher-value properties.

The outcome in Sehgal demonstrates how a relatively small non-residential component can have a significant effect on SDLT liability, though several SDLT specialist have described the result as “surprising”, meaning outcomes remain fact-specific.

When Are Storage Units or Ancillary Spaces ‘Residential Property’?

It depends on several factors:

Often residential:

• Parking spaces or garages included in the same lease as the flat
• Areas necessary for the dwelling’s use
• Communal areas linked to residential enjoyment

Potentially non-residential:

• Storage units under separate leases
• Spaces that can be independently used or let
• Areas not required for the dwelling
• Outbuildings or land with distinct commercial purpose
• Components legally or functionally independent of the flat

The Tribunal’s analysis emphasised the legal and functional independence of the storage unit in Sehgal.

As always, outcomes are heavily dependent on the facts and documents.

Why the Judgment Appeared Later Than Expected

Although the hearing took place in January 2025, the written judgment was published on the National Archives site later. Delays like this are not unusual and can occur for administrative or procedural reasons.

Now that the decision is publicly available, its reasoning can be analysed directly from the official text.

Possibility of Appeal

Some SDLT professionals commenting publicly have described the decision as unusual and have said they expect HMRC may consider appealing.

At the time of writing:

• no public confirmation of any appeal has been issued, and
• no Upper Tribunal listing is visible.

If an appeal is brought or further developments arise, we will provide an updated analysis.

Recommended Reading for Landlords and Property Owners

You may find these Property118 resources useful:

Why SDLT Planning Matters explains the new 2025 SDLT regime (additional-dwelling surcharge, non-resident surcharge, abolition of MDR) and outlines how legitimate strategies still exist to minimise SDLT for landlords.

Case Study: One Mixed-Use Purchase, Three Strategic Outcomes shows a real-world example where an investor used mixed-use SDLT rules, lease restructuring, refinancing and pension structuring to optimise tax treatment, split assets, and create long-term investment value.

Thinking Bigger: Why Strategic Investors Are Acquiring Six or More Properties in a Single Deal discusses the logic behind buying blocks of six or more properties at once as a deliberate strategy to access non-residential SDLT treatment rather than paying higher residential rates.

Why £2 million Mansion Qualified for 5% SDLT explains how a large, £2 million countryside mansion (with a chapel, a lake and six holiday-let cottages) nonetheless became liable to a 5 % Stamp Duty Land Tax (SDLT) charge because it was treated as a “non-residential” or “mixed-use” purchase under the rules.

These guides help provide context when thinking about structuring, ownership, and tax planning.

What To Do If You Think Your SDLT May Have Been Misclassified

If you have purchased property where any of the following applied:

• separate storage units or garages,
• parking on separate titles,
• multiple leases,
• partially commercial areas,
• unusual layouts or ancillary land,
• multi-component purchases under one contract,

…it may be worth reviewing whether the original SDLT position was correct.

Several recent Tribunal decisions,  including Sehgal, show that HMRC assessments are sometimes wrong.

Through a full Property118 consultation, we can help you:

• review ownership structures,

• identify areas worth exploring,

• and understand what further professional input may be needed.

We do not provide SDLT reclaim services ourselves.

Important Notice – Not Legal or Tax Advice

This article is for general information only. It is not SDLT advice, legal advice, tax advice or an encouragement to pursue a reclaim.

All tax positions must be reviewed with your accountant. All legal interpretations must be confirmed by your solicitor or barrister.

We will provide a full technical breakdown of the Sehgal decision if and when an appeal is announced or further details become publicly available.

Our consultancy not only covers retirement, business continuity and legacy planning. It can also unlock the lifestyle you once dreamed about but forgot to implement.

Important notice – scope of planning support

Where our recommendations touch on areas requiring regulated input, we refer clients to appropriately authorised professionals for advice and execution.

Mixed-Use SDLT – Frequently Asked Questions (FAQ)

Information correct as at 3rd December 2025. SDLT rules and case law change frequently. Always seek specialist advice before making or amending any SDLT filing.

1. What does “mixed-use” mean for SDLT?

A purchase is treated as mixed-use when it includes both:

• residential elements (e.g., a dwelling), and
• non-residential elements (e.g., commercial land, separate units, land not used as part of the dwelling).

If any part of the relevant land is non-residential, SDLT is charged at non-residential rates for the whole transaction. (Exactly how “relevant land” is defined depends on the facts, titles and contracts involved.)

2. What counts as “residential property” for SDLT?

The Finance Act 2003 (s.116) defines residential property as:

• a dwelling,
• land that forms part of the garden or grounds of that dwelling, and
• interests or rights that subsist for the benefit of the dwelling (e.g., a parking space included within the same lease).

It is not about what something is called, but how it actually functions.

3. Can a storage unit or garage make a purchase mixed-use?

It depends on the details:

Often residential

• A parking space or garage included in the same lease/title
• Areas integral to the flat
• Storage that is not independently accessible or lettable

Potentially non-residential

• A storage unit on a separate lease
• Garages that can be used independently
• Areas with separate access or titles
• Units capable of being let independently

The key question is whether the space subsists for the benefit of the dwelling. Every case turns on its own facts and paperwork.

4. What if I have a garden office, studio or outbuilding?

If the structure is:

• within the garden/grounds, and
• used for domestic purposes,

…it is generally still “residential property”.

However, if it is:

• separately lettable,
• used commercially,
• held under a different title, OR
• functionally independent,

…the analysis becomes more complex.

Tribunal cases have gone both ways, and HMRC routinely challenge borderline claims. Professional SDLT advice is essential before relying on mixed-use treatment.

5. What about land surrounding a house?

Land can be non-residential if:

• it is used for commercial activity (e.g., grazing),
• it is genuinely separate from the use of the dwelling, OR
• it is not reasonably required for the enjoyment of the home.

The Suterwalla case is an example where grazing land meant the purchase was mixed-use. Similar-looking land in other cases has still been treated as part of the residential “grounds”. This is highly fact-specific.

6. Does having a second dwelling (like an annex) make a property mixed-use?

No, a second dwelling does not create mixed-use.

Historically this would have engaged Multiple Dwellings Relief (MDR).

MDR is now abolished for most transactions (with limited transitional rules), but the “how many dwellings?” question may still be relevant for historic cases.

A second dwelling is still residential, not non-residential.

7. Are mixed-use SDLT rates always lower?

They can be lower, especially on higher-value purchases, because:

• non-residential rates top out at 5%, and
• there is no 3% surcharge or 15% corporate rate on non-residential transactions.

However, the financial difference depends on:

• your transaction value,
• buyer type, and
• timing.

You should always run the numbers with a specialist, the saving is not automatic.

8. Does the Sehgal case mean storage units are non-residential?

No, it means that in that specific case, with:

• a separate short lease,
• a separate title,
• and specific factual circumstances,

…the Tribunal found the storage unit did not “subsist for the benefit of” the apartment.

The Tribunal itself acknowledged this was a “surprising result” given the storage unit’s small value relative to the flat.

This does not create a general rule. Most “flat + store” arrangements will still be residential, it depends entirely on the precise facts.

You should not change or amend any SDLT return based solely on Sehgal without specialist review.

9. What if my purchase included multiple leases or multiple titles?

Multiple leases/titles are a red flag that mixed-use might be relevant, but they do not guarantee it.

Key considerations include:

• how the documents link the spaces,
• whether each element is independently usable,
• whether the rights are essential to the dwelling, and
• whether different parts can be legally occupied or let separately.

An adviser needs to review the actual documents.

10. Can a small non-residential component change the whole SDLT result?

Yes; if the non-residential element is genuinely non-residential under FA 2003 s.116.

This is the core lesson from Sehgal, but again, only where the documentation and facts support it.

11. Is HMRC expected to appeal the Sehgal decision?

Some SDLT professionals commenting publicly have suggested that HMRC may consider an appeal, but:

• no appeal has been publicly confirmed, and
• no Upper Tribunal listing is available at the time of writing.

If this changes, we will provide an update.

12. What should I do if I think my SDLT may have been misclassified?

Do not amend or submit an SDLT reclaim without specialist advice.

Instead:

• gather the leases/titles/contracts,
• obtain a structured review,
• and speak to an accountant or SDLT solicitor about potential next steps.

Property118 can help you sense-check ownership structures and understand which questions to take to a regulated adviser.

We do not provide SDLT reclaim services.

13. Where can I learn more about property structures and tax?

You may find these Property118 resources useful:

Why SDLT Planning Matters — explains the new 2025 SDLT regime (additional-dwelling surcharge, non-resident surcharge, abolition of MDR) and outlines how legitimate strategies still exist to minimise SDLT for landlords.

Case Study: One Mixed-Use Purchase, Three Strategic Outcomes — shows a real-world example where an investor used mixed-use SDLT rules, lease restructuring, refinancing and pension structuring to optimise tax treatment, split assets, and create long-term investment value.

Thinking Bigger: Why Strategic Investors Are Acquiring Six or More Properties in a Single Deal — discusses the logic behind buying blocks of six or more properties at once as a deliberate strategy to access non-residential SDLT treatment rather than paying higher residential rates.

Why £2 million Mansion Qualified for 5% SDLT — this explains how a large, £2 million countryside mansion (with a chapel, a lake and six holiday-let cottages) nonetheless became liable to a 5 % Stamp Duty Land Tax (SDLT) charge because it was treated as a “non-residential” or “mixed-use” purchase under the rules.

These guides help provide context when thinking about structuring, ownership, and tax planning.

Disclaimer

This FAQ is for general information only. It is not tax advice, legal advice, SDLT reclaim advice, or a recommendation to amend any tax return.

SDLT outcomes depend entirely on the facts and documents of each case. Always consult a qualified SDLT specialist, accountant or solicitor before taking action.

Important Notice – Not Legal or Tax Advice

This article is for general information only. It is not SDLT advice, legal advice, tax advice or an encouragement to pursue a reclaim.

All tax positions must be reviewed with your accountant. All legal interpretations must be confirmed by your solicitor or barrister.

We will provide a full technical breakdown of the Sehgal decision if and when an appeal is announced or further details become publicly available.

Our consultancy not only covers retirement, business continuity and legacy planning. It can also unlock the lifestyle you once dreamed about but forgot to implement.

Important notice – scope of planning support

Where our recommendations touch on areas requiring regulated input, we refer clients to appropriately authorised professionals for advice and execution.

The post SDLT Tribunal Win Highlights Misclassification Risks for Landlords appeared first on Property118.

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