Summary: A recent First-tier Tribunal ruling in the case of Sehgal v Revenue and Customs [2025] UKFTT 1439 (TC) has emphasised the risks of misclassifying property components for Stamp Duty Land Tax (SDLT) purposes. This decision highlights that when a property purchase includes multiple elements such as parking spaces or storage units, the SDLT treatment can differ significantly, potentially affecting landlords’ tax liabilities.

Background of the SDLT Tribunal Case

The tribunal case involved the purchase of an apartment, an allocated parking space, and a separate basement storage unit, all acquired under a single contract for £18,250,000. HM Revenue & Customs (HMRC) initially treated the entire transaction as wholly residential, applying the higher residential SDLT rates. However, the appellants challenged this classification.

The Tribunal found that the storage unit did not “subsist for the benefit of” the apartment under the Finance Act 2003, section 116, and therefore did not qualify as residential property. As a result, the non-residential SDLT rates applied to the transaction, leading to a repayment order of £1,749,250 in favour of the appellants.

It is important to note that the appellants were not identified as landlords in the public judgment, nor was the property described as part of a rental portfolio or purchased for investment. Nonetheless, the ruling is highly relevant to landlords who often deal with mixed-use property purchases involving multiple titles or ancillary spaces.

Why This Tribunal Decision Matters to Landlords

Many property acquisitions involve several components beyond the main dwelling, such as garages, storage units, plant rooms, bin stores, commercial elements, or parking spaces held under separate titles. This case underscores a key SDLT principle: if any part of the transaction is non-residential, the entire purchase may be subject to non-residential SDLT rates, which can be substantially lower than residential rates on high-value properties.

For landlords managing portfolios with flats that include ancillary spaces or separate leases, this ruling serves as a reminder to carefully assess the SDLT classification of each component. Misclassification can result in significant overpayment of SDLT, especially on larger transactions.

Understanding When Ancillary Spaces Are Considered Residential

The classification of storage units, parking spaces, or garages depends on their legal and functional relationship to the dwelling:

• Typically residential: Parking spaces or garages included within the same lease as the flat; areas necessary for the dwelling’s use; communal spaces 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 purposes; components legally or functionally independent of the flat.

The tribunal’s analysis in Sehgal emphasised the independence of the storage unit, which was held under a separate 20-year lease and registered under its own title. This legal and functional separation was decisive in classifying it as non-residential.

Implications for Landlords and Agents

Landlords should be aware that multiple leases or titles within a single property purchase can be a red flag for mixed-use SDLT treatment. However, this does not automatically mean the transaction is mixed-use; the specific facts, contracts, and how the spaces are used are critical.

Given the complexity and fact-specific nature of SDLT classification, landlords and agents should seek specialist advice when purchasing properties with ancillary spaces or multiple components. This is particularly important to avoid overpaying SDLT or missing opportunities for legitimate tax planning.

Next Steps if You Suspect SDLT Misclassification

If you have purchased property involving separate storage units, garages, parking spaces on different titles, multiple leases, or partially commercial areas, it may be worthwhile to review the SDLT treatment applied. Recent tribunal decisions, including Sehgal, demonstrate that HMRC assessments can sometimes be incorrect.

Before taking any action, do not amend SDLT returns or submit reclaims without professional advice. Instead, gather all relevant leases, titles, and contracts and consult a qualified SDLT specialist, accountant, or solicitor to assess your position and potential next steps.

Additional Considerations and Resources

It is also important to understand that the Sehgal decision is fact-specific and does not establish a general rule that all storage units or ancillary spaces are non-residential. Most arrangements where ancillary spaces are included within the same lease or are integral to the dwelling will still be treated as residential.

Landlords may find it useful to familiarise themselves with the broader SDLT rules and recent changes, including the abolition of Multiple Dwellings Relief and the introduction of new surcharges. Understanding these can assist in effective tax planning and structuring of property portfolios.

Summary of Key Points for Landlords

• Mixed-use SDLT treatment applies when a purchase includes both residential and non-residential elements.
• Non-residential SDLT rates may apply to the entire transaction if any part is non-residential.
• Ancillary spaces under separate leases or titles may be classified as non-residential.
• Misclassification can lead to substantial SDLT overpayments on high-value purchases.
• Professional advice is essential before amending SDLT returns or pursuing reclaims.

Important Notice

This article provides general information only and does not constitute legal or tax advice. Landlords and agents should consult qualified professionals regarding their specific circumstances. SDLT outcomes depend on the precise facts and documentation of each case.