When is a property classified as residential?

Defining mixed-use property

Existence of Paddocks

The case of Suterwalla concerned a large house with an adjoining paddock, which shared both common ownership and a border. 

The taxpayer asserted that the paddock was primarily used for grazing land. With a grazing agreement being signed on the date of acquisition by the taxpayer.

Additionally, it had not only been marketed and treated separately during its acquisition, but it was also physically separated from the house by fencing, with limited access points between the paddock and the property. The taxpayer therefore paid and subsequently argued the lower mixed-use rates of SDLT should apply.  

HMRC argued that due to the proximity of the paddock to the property, it was a part of the gardens and grounds of the dwelling. Furthermore, as the grazing lease was not in place prior to the acquisition, it should be ignored. 

The First‑Tier Tribunal (FTT) concluded the paddock did not form part of the dwelling’s garden or grounds. HMRC took this to the Upper Tribunal (UT), whereby the FTT’s decision was upheld. Both tribunals emphasised that the correct analysis is a practical one: separate title and commercial use, together with the absence of any real functional connection to the dwelling, outweighed simple contiguity. 

The Suterwalla case therefore, illustrates how evidence of distinct use and commercial arrangements can decisively push land into the non‑residential camp.

Properties with separate woodlands

In the Marie Guerlain‑Desai case, the dispute centred on whether an extensive block of woodland behind a residence should be treated as part of the dwelling’s grounds. The property consisted of four acres of gardens and 12 acres of publicly accessible mature woodland. 

The taxpayer argued that the woodland was not only publicly accessible, but also physically separated from the property’s formal gardens. Additionally, it was managed by a third-party company, whereby an annual fee was payable by the taxpayer.

HMRC argued that there was no separate function of the woodlands and that they formed part of the grounds which were residential in character. 

The FTT held that the character and management of the woodland were inconsistent with inclusion of the land as a garden or grounds, as they were not laid out nor used as formal gardens. The decision draws a clear line between curated ornamental grounds intended for private enjoyment and larger natural, or semi‑natural features, that, by their nature and use, serve a broader communal or recreational purpose.

Whether the commercial part of property can still be considered suitable for use as a dwelling

In the case of Andrei Tretyakov, the dispute centred on a property that included a main house surrounded by land with a patchwork of different uses. Some areas were clearly part of the domestic setting, while others were used for separate, non-domestic purposes.

Tretyakov claimed that the property should be treated as mixed use due to the amenities, including a bar, games room, wine cellar, gym and sauna which occupied the ground floor at the time of purchase. Additionally, the property contained a garage and storage space which had previously been used to support a sculpture repair business.  

HMRC argued that the entire property was residential in nature and that the property in its entirety was suitable as a dwelling. They reasoned that the ground floor amenities were more akin to a private entertaining space than a commercial enterprise. 

The tribunal ultimately ruled that the property as a whole, was suitable for use as a dwelling, despite the ground floor’s features. They emphasised that genuine commercial use alone doesn’t guarantee mixed-use classification and sided with HMRC.

Is a derelict house still a dwelling?

The question of when land or a building should be treated as a 'dwelling' for SDLT purposes is deceptively simple but often strongly contested. 

While HMRC guidance accepts that a property which has fallen into genuine dereliction is no longer residential, the dividing line between a structure that merely needs repair and one that is truly uninhabitable is far from clear.

This uncertainty matters. The classification can significantly affect the SDLT rate payable, and in borderline cases, the stakes are high for both taxpayers and HMRC. 

Two recent appellate decisions, Mudan v HMRC and P N Bewley Ltd v HMRC, illustrate how the courts approach these fact-sensitive cases. Mudan focuses on the threshold of 'suitability for use as a dwelling', emphasising the need for substantive evidence when suitability is disputed. Bewley, by contrast, examines whether a property retains the essential attributes of a dwelling when its condition has deteriorated or it is in a transitional state.

Together, both cases provide valuable guidance when navigating the area between 'in need of work' and 'no longer a dwelling,' and they underscore the importance of evidence-driven arguments in SDLT disputes. 

The Mudan v HMRC case challenged the difference between unliveable and derelict. 

Prior to Mudan’s acquisition of the property, the previous tenants (and their ten dogs) took little to no care of the property. Vandalisation, mice, and loose wires made the property unappealing to live in, and the defendant argued that the need for a new boiler, new roof, and bad smell made the property impossible to live in. 

Despite this, the tribunal ruled in HMRC’s favour. HMRC had set out strong arguments about the recent residential use of the property. Additionally, they outlined a strong argument that the focus in these cases should be on the fundamental characteristics of the property, not whether it is immediately habitable. 

This case highlights that even when a property is considered unlivable, this may not be sufficient to tip a site into a residential classification.

When a derelict property is not classed as a dwelling

The P N Bewley Ltd v HMRC case remains a touchstone case when understanding the definition of a 'dwelling' for a property in derelict condition.

The case concerned a bungalow that contained asbestos in urgent need of removal. The property itself was in such poor condition that it could not be safely occupied without major works. The taxpayer argued that the property, which had not been occupied since 2014, was derelict and that they had purchased it with the intention of demolition rather than refurbishment or reoccupation. Moreover, they argued that the property was not advertised with internal photos making it clear that it was not suitable for use as a residence.

HMRC insisted that the property was residential in nature and designed to be a dwelling. They also argued that the taxpayer’s planning permission had been granted for a new residential dwelling reinforcing its future as a residential property.

As with Mudan v HMRC the tribunal deliberated whether the building still retained the essential characteristics of a dwelling eventually ruling in the taxpayer’s favour. The court emphasised that the term 'dwelling' lies in the objective reality. The structure in question had lost its practical ability to function as a residence, because it was unsafe, uninhabitable and stripped of basic facilities. It therefore fell outside the residential classification.

Conclusion

The recent SDLT cases confirm that the distinction between residential and non-residential is not always straightforward but instead a test of evidence and practical reality. Whether the issue is the extent of a dwelling’s grounds, the integration of surrounding land, or the suitability of a building for occupation, it is important to examine the facts and effective use of the land and properties. 

Across Suterwalla, Marie Guerlain Desai, and Tretyakov, the courts have shown that proximity to a dwelling is not enough to secure residential status where land is functionally separate or used for commercial purposes. In Mudan and Bewley, the focus shifts to the physical condition of the property itself, with the decisions illustrating that the threshold for losing 'dwelling' status is high but not insurmountable where dereliction is proven.