HMRC Loses Major SDLT Case - £1.75m Repayment Ordered | Stamp Duty News

Key Takeaways

Sehgal v Revenue [2025] UKFTT 1439: tribunal ordered HMRC to repay £1,749,250 after basement storage unit qualified entire £18.25m purchase for mixed-use rates
The tribunal held that the storage unit, held on its own separate lease, was not "appurtenant" to the flat: it could be assigned or sublet on its own (to other occupiers in the building), so it was not residential property
Mixed-use rates cap at 5% vs 12% residential maximum. At current rates a £10m purchase would save £624,250 if mixed-use classification applies
This is a First-tier Tribunal decision (24 November 2025). It does not bind other tribunals, and as of 29 September 2026 no Upper Tribunal decision on it has been published
Buyers with mixed-use properties (flats + parking + storage) may have overpaid SDLT. A return can be amended within 12 months of the filing date; after that an overpayment relief claim is generally possible within 4 years of the effective date
Uninhabitable property claims require robust evidence: structural surveys, building control notices, utility disconnection, not just "needs work"
Hyman and Goodfellow v HMRC [2022] EWCA Civ 185 is the leading Court of Appeal authority on gardens and grounds; HMRC won, and Sehgal was decided on a different point
HMRC actively challenges high-value mixed-use claims. Professional SDLT advice and contemporaneous documentation essential before filing

Case Summary: Sehgal v Revenue

In Sehgal v Revenue & Customs [2025] UKFTT 1439 (TC), the First-tier Tribunal delivered a significant ruling that has sent shockwaves through the property tax world. The tribunal ordered HMRC to repay £1,749,250 in overpaid stamp duty land tax (SDLT) to the taxpayer, Mr Sehgal. Use our stamp duty calculator to see the difference between residential and mixed-use rates.

The case centred on a luxury apartment purchase where a basement storage unit was classified as non-residential property. This classification meant that the entire transaction qualified for the significantly lower mixed-use SDLT rates, rather than the higher residential rates that HMRC had originally assessed. Learn more about this property type in our mixed-use property guide.

The ruling represents one of the largest SDLT repayments ordered by a tribunal in recent years. However, it is a First-tier Tribunal decision that does not bind other tribunals, and HMRC may seek to appeal it; as of 29 September 2026 no Upper Tribunal decision on the case has been published.

The Property and Key Facts

The taxpayer purchased a property in a prestigious London development for £18.25 million. The purchase comprised three distinct elements:

A luxury residential apartment
A designated car parking space
A basement storage unit located in a separate part of the building

The buyers' own SDLT return, filed on 7 March 2022, treated the whole £18.25 million purchase as residential and applied the higher rates. In December 2022 their then agents asked to amend the return to mixed-use rates and claimed a refund of £1,749,250. HMRC opened an enquiry and, in a closure notice on 21 July 2023, refused the refund. On appeal the argument turned to the basement storage unit, which had been granted on its own lease.

Mixed-Use Classification

When a property transaction includes both residential and non-residential elements, the entire purchase is taxed at mixed-use rates, which are significantly lower than residential rates. This is not a proportional split. It's an all-or-nothing classification that applies to the total purchase price.

The tribunal had to determine whether the storage unit was sufficiently independent and non-residential to warrant mixed-use classification for the entire £18.25 million transaction.

Residential vs Mixed-Use SDLT Rates

The difference between residential and mixed-use SDLT rates becomes dramatic at high property values. The table below illustrates the potential savings at the current standard residential rates (from 1 April 2025, before any 5% surcharge) and the non-residential rates:

Purchase Price	Residential SDLT	Mixed-Use SDLT	Saving
£1m	£43,750	£39,500	£4,250
£2m	£153,750	£89,500	£64,250
£5m	£513,750	£239,500	£274,250
£10m	£1,113,750	£489,500	£624,250

Mixed-use rates cap at 5% for amounts above £250,000, while residential rates reach 12% for amounts above £1.5 million. This structural difference means the savings gap widens dramatically for high-value properties. In this case, the taxpayer's £18.25 million purchase qualified for mixed-use treatment, resulting in the £1.75 million refund.

What the Tribunal Decided

The tribunal (Judge Rachel Gauke and Jane Cummins) allowed the appeal. The decision did not turn on an “independent utility” test, and the storage unit was reached through the communal parts of the building rather than through its own entrance. The question was a legal one: whether the storage unit lease was residential property because it was “appurtenant” to the flat, or an interest subsisting for the benefit of a dwelling, under sections 43(6) and 116(1)(c) of the Finance Act 2003.

Key points in the tribunal's reasoning included:

The storage unit was granted on a separate lease, not as a right within the flat's lease
The lease could be assigned or sublet on its own, to occupiers of other apartments in the building, with the landlord's consent
A sale of the flat would not automatically carry the storage unit with it, so the two were not annexed
Its use was restricted to residential storage for an apartment in the building, but not linked to this flat specifically
That distinguished it from cases on communal gardens, where an easement within the flat's lease was held to be part of the dwelling

The tribunal took the meaning of “appurtenant” from land law, drawing on the Supreme Court's decision in Regency Villas v Diamond Resorts [2018] UKSC 57. It did not apply Hyman v HMRC, which concerned gardens and grounds. For more context on how courts interpret mixed-use, see our review of landmark stamp duty cases.

In concluding that the storage unit was non-residential, the tribunal determined that the entire transaction, including the apartment and parking space, qualified for the lower mixed-use SDLT rates.

Implications for Property Buyers

This ruling is significant for buyers of high-value properties, particularly those that include elements like storage units, parking facilities, or commercial spaces. However, it should be approached with considerable caution.

Important considerations:

Not a binding precedent: This is a First-tier Tribunal decision, so it does not bind other tribunals, and HMRC may seek to appeal it. As of 29 September 2026 no Upper Tribunal decision on the case has been published.
Active challenge by HMRC: HMRC actively investigates and challenges mixed-use claims, particularly on high-value transactions where the tax savings are substantial.
Fact-specific analysis: Each case turns on its specific facts. The tribunal's finding depended on the storage unit being held on its own lease that could be dealt with separately from the flat; a storeroom granted as a right within the flat's lease would be treated differently.
Retrospective claims possible: Buyers who believe they may have overpaid SDLT can amend their SDLT return within 12 months of the filing date, or after that make an overpayment relief claim, generally within 4 years of the effective date. Disputes about additional dwellings are addressed in our additional dwelling case law guide.
Professional advice essential: Given the complexity of the law and HMRC's aggressive stance on these claims, professional valuation and legal advice is essential before making a mixed-use claim.

The case highlights the importance of proper property classification at the time of purchase. For transactions involving multiple elements, buyers should consider whether mixed-use treatment might apply and seek specialist advice before completing the SDLT return.

How This Affects Uninhabitable Property Claims

While the Sehgal case dealt with mixed-use classification via a storage unit, another common SDLT dispute involves properties claimed as "uninhabitable" or "not suitable for use as a dwelling." HMRC has taken an increasingly strict approach to such claims.

HMRC's Stricter Approach

HMRC now scrutinises uninhabitable property claims more carefully. Simply arguing that a property "needs work" or is "in poor condition" is insufficient. You must demonstrate that the property was genuinely not suitable for use as a dwelling at the point of purchase, typically requiring evidence of structural defects, lack of essential services, or building control notices prohibiting occupation.

Evidence required for uninhabitable claims:

Structural surveys: Professional reports documenting major structural issues (roof collapse, unsafe floors, foundation problems)
Building control notices: Local authority notices prohibiting occupation due to safety concerns
Utility disconnection: Evidence that water, electricity, gas, or sewage services are permanently disconnected (not just turned off)
Planning restrictions: Documentation showing the property cannot be used residentially without major works requiring planning permission
Photographic evidence: Dated photos showing the uninhabitable condition at completion

If you're buying a property in poor condition and considering claiming non-residential rates, document everything thoroughly before completion and seek professional SDLT advice immediately. HMRC may challenge the claim years later, and you'll need contemporaneous evidence to defend it.

Key Takeaways for Buyers and Advisors

The Sehgal ruling and broader SDLT case law provide important lessons for property buyers, particularly those purchasing high-value or complex properties:

1. Get Professional SDLT Advice Early

Don't wait until after completion to consider SDLT implications. For transactions involving storage units, parking, commercial elements, or properties in poor condition, engage a specialist SDLT advisor before exchange of contracts. The potential savings can be substantial, but so are the risks if claims are challenged.

2. Document Everything

If you believe your property qualifies for mixed-use treatment or non-residential rates, document the basis for your claim comprehensively. Take photos, obtain professional surveys, save estate agent particulars, and retain all correspondence with sellers. HMRC challenges can come years later, and you'll need contemporaneous evidence.

3. Be Prepared for HMRC Challenge

HMRC actively investigates high-value transactions where mixed-use or non-residential rates have been claimed. They can open an enquiry within 9 months of the filing date (or of the date you file, if later), and outside that window can still raise a discovery assessment, normally within 4 years, 6 years for careless errors and 20 years for deliberate ones. Ensure your claim is robust and supported by evidence before filing. If challenged, be prepared to defend your position through the tribunal system if necessary.

4. Check How Each Element Is Held

In Sehgal the deciding point was legal form: the storage unit sat on its own lease that could be assigned or sublet separately from the flat, so it was not appurtenant to the dwelling. A garage, storeroom or parking right granted within the flat's own lease, or land forming part of the garden or grounds, will normally be residential. The analysis is case-specific.

Other Notable SDLT Court Cases

The Sehgal case is one of several important SDLT tribunal decisions shaping how property classification is determined. Other key cases include:

P N Bewley Ltd v HMRC [2019] UKFTT 65 (TC)

The taxpayer bought a derelict bungalow that needed effectively rebuilding. The First-tier Tribunal found it was not suitable for use as a dwelling on the purchase date, so the higher residential rates did not apply, and the taxpayer won. Later cases, including Mudan v HMRC in the Court of Appeal in 2025, confirm that a home which merely needs repair or refurbishment is still residential.

Hyman v HMRC [2022] EWCA Civ 185

Mr and Mrs Hyman argued that a meadow and land beside a bridleway bought with their house were not part of its “garden or grounds”, so mixed-use rates applied. The First-tier Tribunal, the Upper Tribunal ([2021] UKUT 68 (TCC)) and the Court of Appeal all found for HMRC. It is a gardens and grounds case; it did not set out a six-factor test.

Goodfellow v HMRC [2022] EWCA Civ 185

Dr and Mrs Goodfellow bought a house with 4.5 acres including gardens, a stable yard and paddocks, and argued that the stable yard, paddocks and an office above the garage were not residential. HMRC won at every level: the tribunal found all of the land formed part of the grounds, and the Court of Appeal dismissed the appeal, heard together with Hyman. It shows how hard it is to claim mixed-use rates on land sold with a house.

These cases illustrate that each SDLT classification dispute turns on its specific facts. While favorable rulings exist, HMRC vigorously defends its position, and tribunal outcomes are unpredictable. Professional advice is essential before making any non-standard SDLT claim. For a broader overview, see our guide to landmark stamp duty cases.

Frequently Asked Questions About SDLT Court Cases

Can I claim non-residential rates for an uninhabitable property?

Possibly, but it's very difficult. You must prove the property was genuinely not suitable for use as a dwelling at completion, not just that it needed work. HMRC requires evidence of major structural defects, disconnected utilities, building control notices, or planning restrictions preventing residential use. Simply being in poor condition or requiring refurbishment is insufficient. Get professional SDLT advice and document everything before claiming non-residential rates.

What evidence does HMRC require for mixed-use claims?

It depends on the element. For land sold with a house, the question is whether it forms part of the garden or grounds, and HMRC has won most of these cases. For a storeroom, parking space or similar, the question is how it is held and whether it is residential property in law. In the Sehgal case the key factor was that the storage unit was held on its own lease that could be assigned or sublet separately from the flat, so it was not appurtenant to the dwelling. Keep the leases, transfer deeds and any evidence of separate use.

How does this affect my stamp duty claim?

If your purchase genuinely includes a non-residential element, such as a commercial unit or, as in Sehgal, a separately leased storage unit that is not appurtenant to the flat, you may qualify for mixed-use SDLT rates (capped at 5% vs 12% residential maximum). This can save hundreds of thousands of pounds on high-value properties. However, HMRC actively challenges such claims, so you need robust evidence and professional advice before claiming mixed-use treatment on your SDLT return.

Should I get professional advice on SDLT claims?

Yes, absolutely, especially for high-value properties or complex transactions. Specialist SDLT advisors can analyze whether mixed-use treatment or other relief applies, help document your claim properly, and defend it if HMRC challenges. The cost of advice is typically far lower than the potential tax saving. Above about £2.5 million, the difference between the standard residential and mixed-use rates can exceed £100,000, making professional advice essential.

Calculate Your Stamp Duty

Our calculator computes both residential and non-residential SDLT rates, allowing you to see the potential difference. If you believe your property may qualify as mixed-use, seek professional advice before filing your SDLT return.

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HMRC Loses Major SDLT Case - £1.75m Repayment Ordered