Sehgal v The Commissioners for HM Revenue and Customs : Mixed Use of Land
In Sehgal v The Commissioners for HM Revenue and Customs [2025] UKFTT 1439 (TC) (decision dated 24 November 2025), the buyers acquired, under one contract and for a single, unapportioned premium of £18.25 million, three separate interests: a high-value apartment, a car parking space (each by way of assignment of existing long leases with more than 900 years unexpired), and a separate basement storage unit (approximately 2m x 4m) acquired by the grant of a new 20-year lease, each with its own title. The buyers originally submitted a single SDLT return applying residential rates, but later amended the return to claim a refund of £1,749,250, contending that the purchase should have been taxed at mixed-use rates because it included non-residential property, namely the storage unit.
The core issue was whether SDLT should be calculated at the residential rates or the mixed-use rates. The buyers argued that the storage unit was not “residential property” because it could exist independently of the apartment, could be owned separately, and had uses separate from the apartment. HMRC’s position was that the acquisition was, in substance, a wholly residential transaction. The three components were acquired together under one contract for a single price, and there was an evident intention for the storage unit to remain linked to the apartment for convenience.
The Tribunal disagreed with HMRC. In particular, it held that the storage unit did not fall within the concept (in Finance Act 2003 s116(1)(c)) of an “interest in or right over land” that subsists for the benefit of a dwelling or its garden or grounds, because the storage unit lease was a legally and functionally separate interest. It had its own title and its own lease, and it was not “appurtenant or pertaining” to the apartment in the relevant statutory sense because it could be independently assigned and held by a different apartment owner. On that analysis, the transaction included non-residential property, and the mixed-use (non-residential) rates applied to the whole acquisition.
This decision sits against the wider backdrop of HMRC’s historic challenges to SDLT planning claims, particularly those involving Multiple Dwellings Relief (MDR). In practice, MDR became heavily associated with aggressive claims promoted to taxpayers, often on the basis that refunds would be shared with promoters. That trend drove a significant body of Tribunal litigation in which MDR claims were frequently rejected. Following consultation and policy review, MDR was abolished from 1 June 2024 (subject to transitional arrangements), while the mixed-use rules were left in place. The practical effect is that, although MDR is now largely a historical issue for most modern transactions, mixed-use analysis remains a live and important SDLT question, and Sehgal illustrates how fact-sensitive outcomes can be.
The implications of Sehgal for day-to-day conveyancing are best understood as a process and risk-management issue. First, this was a First-tier Tribunal decision and therefore does not create binding precedent. Second, HMRC has indicated that it does not agree with the outcome and intends to appeal, so the legal position may develop. Third, the fact pattern is at the extreme end, a very high-value apartment was paired with a small, separately titled storage unit on a distinct lease, and the decision turned on separateness of the legal interests and their capacity for independent ownership and dealing. In more typical cases, a “token” non-residential element that is effectively ancillary to the dwelling (for example, something treated like an outbuilding or a garage that is legally and functionally bound up with the dwelling) is far more likely to be treated as residential under the statutory framework. A further practical concern is that unusual outcomes of this nature can attract scheme-promotion activity, which in turn increases the likelihood of HMRC scrutiny and, potentially, future legislative tightening.
Against that background, conveyancers should focus on improving detection and documentation so that potential mixed-use issues are identified early and dealt with appropriately. The first step is to strengthen the SDLT fact-find and onboarding questions so that you reliably capture whether the client is acquiring anything beyond the dwelling itself, such as parking spaces, garages, cellars, storage units, garden plots, strips of land, commercial areas, or any ancillary space that may be on a separate title. The second step is to treat the contract pack and title documents as a tax-relevant evidence set, actively checking whether there are multiple title numbers, multiple demises, multiple leases, or any part of the acquisition being effected by a new lease grant rather than an assignment of the main residential lease. A single contract and a single price should not be treated as conclusive indicators that there is only one chargeable interest or that the transaction must be “wholly residential.”
The third step is to read any ancillary lease or transfer with SDLT classification in mind, rather than treating it as mere “background” documentation. In practical terms, you are looking for whether the ancillary interest can be assigned, underlet, or otherwise dealt with independently of the dwelling, and whether it is legally tied to the benefit of a particular identified dwelling or merely to a class of persons (for example, owners/occupiers of apartments in a building). You should also check for drafting that suggests the ancillary interest has its own independent existence, even if use is restricted to storage or other domestic purposes, because the question is often whether it is a separate legal interest capable of separate ownership, rather than simply how it is intended to be used day to day.
The fourth step is to implement a simple escalation rule. Where you identify a separate title or separate leasehold estate being acquired alongside a dwelling, particularly where that interest could theoretically exist independently of the dwelling, you should treat the matter as requiring tax input. Depending on your firm’s operating model, that may mean internal escalation to a specialist team, or external advice where the risk and value justify it. In either case, your file should show a clear audit trail. What was acquired, what documents you reviewed, what characteristics suggested “separate interest,” what advice was given, and what SDLT filing approach was ultimately adopted.
Finally, it is important to manage client expectations and protect the firm from retrospective refund marketing activity. Where clients are approached post-completion by third parties offering to “recover SDLT,” conveyancers should avoid informal assurances and instead signpost that mixed-use classification is highly fact-sensitive, may be contested by HMRC, and can change as appeal decisions emerge. If a client wishes to explore an amended SDLT position, the discussion should be framed as a tax analysis exercise requiring proper review of the legal interests acquired, not as an automatic entitlement based on the existence of a small ancillary area.
Taken together, the Sehgal decision is best viewed as a reminder that mixed-use outcomes can arise even on unexpected facts where the legal interests are genuinely distinct. For conveyancers, the professional response is robust process. Ask better questions at the outset, identify separate titles and separate leases early, analyse ancillary interests with SDLT classification in mind, escalate when the facts merit it, and document the advice trail carefully. This approach will place you in the best position whether the correct outcome is residential rates, mixed-use rates, or a recommendation that specialist tax advice is required before any filing position is adopted.
Comments
Post a Comment