SDLT Planning for Residential Properties and “Mixed Use”

A recent, and somewhat unusual, Tax Tribunal case highlights the fact that combining a purchase of non-residential land with a purchase of high-value residential land can still be an effective way to secure the application of the much lower rates of SDLT applicable to “mixed-use” purchases.

In Sehgal v The Commissioners for HM Revenue and Customs [2025] UKFTT 1439 (TC), 24 November 2025, the relevant transaction involved the purchase, under one contract and for an unapportioned purchase price of £18.25m, of (i) a high‑value apartment, (ii) a parking space, (each by way of assignment of existing long leases with over 900 years left to run) and (iii) a separate small basement storage unit (approximately 2m x 4m) on a new 20‑year lease, each with its own title. The buyers submitted one Stamp Duty Land Tax (SDLT) return for the combined purchase of the apartment, the parking space, and the storage unit, and applied the residential rates. The SDLT return was later amended by the buyer’s agents to seek a refund of £1,749,250 of SDLT on the basis the much lower “mixed-use” rates of SDLT should have been applied as the transaction had also included the purchase of non-residential property, being the purchase of the storage unit which was non-residential property. The case concerned whether SDLT should be calculated at residential or mixed-use rates. The buyers asserted that the storage unit was not residential property as it could exist independently of the apartment, regardless of who owned it, and because it had uses separate from the apartment. As such, they argued the transaction should be treated as mixed-use for SDLT purposes. Conversely, HMRC contended that the acquisition was a wholly residential, single transaction. Their argument centred on the three parts being encompassed by one transaction, with a single premium, and that there was a clear intention to ‘keep the apartment linked to the storage unit’ for convenience.

The FTT disagreed with HMRC and held that the storage unit did not fall within the Finance Act 2003, s.116(1)(c), an interest in or right over land that subsists for the benefit of a dwelling or its garden/grounds, because it was a legally and functionally separate interest. This was because it had its own title and lease and was not “appurtenant or pertaining” to the apartment, as it could be independently assigned and held by a different apartment owner. As the transaction included non‑residential property, the non‑residential/mixed‑use rates applied to the whole acquisition.

History of Mixed-Use Transactions and Multiple Dwelling Relief (MDR)

In the past, there had been much criticism of SDLT planning involving MDR. This was largely due to SDLT scheme promoters encouraging taxpayers to submit MDR claims in ever more extreme cases (with the taxpayers being required to share any SDLT refunds with promoters). This in turn led to a series of Tax Tribunal cases where in about 9 out of 10 cases the Tribunal rejected the taxpayers’ claims for MDR.  As a result, between 2021-2022, HMRC launched a Consultation seeking views on ways to ensure fairer tax outcomes which prevent abuse of SDLT legislation, focusing on mixed-property transactions and MDR. The Consultation found no substantial evidence that MDR met its objectives of supporting investment in residential property and the private rented sector.  In relation to mixed-use, the consultation noted that HMRC continued to have success in challenging spurious claims to mixed-property treatment. 

Consequently, in March 2024, HMRC announced that MDR would be abolished from 1 June 2024, but the mixed-use rules would remain unchanged. As such, MDR is only applicable to such transactions where contracts were exchanged on or before 6 March 2024, and those falling within the transition period, spanning from 6 March 2024 to 1 June 2024.

Implications of the Sehgal Case

The decision serves as a useful reminder that structuring a high value residential property transaction as a bona fide purchase of mixed-use property can still be a valid form of SDLT planning. It highlights the fact that mixed-use treatment can apply where there are genuine, distinct interests in both residential, and non-residential property, being purchased together under one contract provided that the non-residential component is materially independent from the residential part.

However, it must be noted that this case is a rather extreme example. The outcome of this case was centred on the separateness of the title and independent functions of the three spaces. A token share that is effectively ancillary to the flat will typically be treated as residential under s.116. Therefore, the buyers were fortunate that the storage unit was not treated as akin to a garage or outbuilding. As such, the following points should be considered in light of this decision:

• This was an FTT decision and so does not create any binding precedent.
• HMRC noted via the Chartered Institute of Taxation, that they “do not agree with the First-tier Tribunal’s decision, and [they] intend to appeal”. 
• This rather extreme case/decision is likely to encourage SDLT ‘scheme promoters’  to push claims for Mixed Use treatment on more and more extreme facts, just as they did with MDR.  If they do so, this will no doubt encourage HMRC to push the government to look closely again at changing the SDLT treatment of mixed-use transactions. For example, they may argue for some form of “just and reasonable apportionment” to apply to “mixed use” transactions, applying residential rates to the residential element and non-residential rates to the non-residential elements.