HMRC Loses Major SDLT Case - £1.75m Repayment Ordered

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, HMRC has indicated it is seeking leave to appeal to the Upper Tribunal, meaning the final outcome remains uncertain.

The Property and Key Facts

The taxpayer purchased a property in a prestigious London development for £10.65 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

HMRC initially assessed the entire property as residential, calculating SDLT based on the higher residential rates. The taxpayer challenged this assessment, arguing that the basement storage unit was non-residential in nature, which would make the whole purchase a mixed-use transaction subject to lower rates.

The tribunal had to determine whether the storage unit was sufficiently independent and non-residential to warrant mixed-use classification for the entire £10.65 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 for various purchase prices:

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 £10.65 million purchase qualified for mixed-use treatment, resulting in the £1.75 million refund.

What the Tribunal Decided

The tribunal found that the basement storage unit had "independent utility" and was not merely ancillary to the residential apartment. This was the critical determination that allowed the entire transaction to qualify for mixed-use rates.

Key factors in the tribunal's reasoning included:

• The storage unit was located in a separate part of the building with its own entrance
• It had independent utility. It could be used, sold, or let separately from the apartment
• The unit was not designed or suitable for residential use
• There was no requirement to use the storage unit in conjunction with the apartment
• The storage unit had commercial characteristics similar to business storage facilities

The tribunal applied the six-factor test established in Hyman v HMRC [2021] UKUT 0104 (TCC) for determining whether property is residential or non-residential. The test examines factors including the property's layout, use, marketability, and whether it is suitable for use as a dwelling. For more context on how courts interpret mixed-use, see our review of mixed-use classification 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:

• HMRC is seeking to appeal: This ruling is not yet final. HMRC has indicated it will seek leave to appeal to the Upper Tribunal, which has historically been more sympathetic to HMRC's position in mixed-use disputes.
• 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 that this storage unit had "independent utility" was based on detailed evidence about its location, access, and potential uses.
• Retrospective claims possible: Buyers who believe they may have overpaid SDLT can file an amendment to their SDLT return within 12 months of the filing date, or potentially make a claim under the error or mistake provisions. 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.

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:

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:

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