HMRC wins legal battle against ‘home office’ residential Stamp Duty Land Tax reduction claim

An attempt to reduce Stamp Duty Land Tax on a house purchase by claiming that one room was used as a home office and grounds were a paddock has been rejected following a legal challenge from HMRC.

The First-tier Tribunal has ruled in Goodfellow v HMRC that the claim was “artificial, strained and contrary to common sense.”

Andrew Levene, Tax Consultant at accountancy firm BKL, said:

“The Tribunal basically said ‘pull the other one’ because the room in question was connected to the house, had its own bathroom and could be used as a guest room or a games room. It was no different to someone who uses a spare room or even dining room table as an office.”

Dr Craig Goodfellow and his wife, Julie, bought a property described by estate agents as a “fantastic family home set in about 4.5 acres in the New Forest, with 6 bedrooms, gardens, swimming pool, garage, stable yard and paddocks”.

The garage was detached from the house. Above the garage was a room used as a home office and connected to the main property by a covered walkway. The stable yard and paddocks were let to a neighbour for grazing horses for a nominal rent per month.

The original Stamp Duty (SDLT) return treated the entire acquisition as residential, meaning that rates as high as 15 per cent could have been applied on the purchase. However, the Goodfellows subsequently claimed that the office and paddocks were non-residential and that the lower non-residential rates which go up to 5 per cent applied.

The Tribunal was equally dismissive of the claim for paddocks, ruling that they clearly formed a part of the house’s grounds as there was no evidence of commercial exploitation. Therefore, they were also residential for tax purposes.

Kindly shared by Berg Kaprow Lewis LLP (BKL)