The owners of a luxury London flat have saved £1.7m on stamp duty after they successfully challenged the tax status of a “large cupboard”.
Raj and Varsha Sehgal have won a legal battle with HMRC after buying a £18.25m property in Grosvenor Square in 2022, which came with a storage unit in the basement.
The flat was initially treated as a residential property, making it subject to the highest rate of stamp duty.
But the owners argued that they should receive a large tax refund, saying the property is ‘mixed use’ due to the storage unit which measures less than two by four metres - tax rules stipulate that higher residential rates of stamp duty should only be applied if the entire property is deemed to be residential.
A first-tier tribunal found in the couple’s favour, and the property has now been classed as “mixed use” by HMRC and taxed at a lower rate.
The storage unit and the apartment being located on different floors of the building were integral to the decision.
Such tax disputes over mixed-use or residential properties are more typical in the case of farms, where agricultural buildings are included in a sale.
Observing that the decision involved “a strained interpretation of the legislation”, the tribunal nevertheless concluded the law was clear that stamp duty should not be applied.
In summation, the tribunal said: “We are conscious that this appears to be a surprising result, given the relatively small value that must attach to the storage unit compared with that of the apartment.
“However, the legislation is clear that the residential rates apply only if the relevant land consists entirely of residential property.”
Tim Stovold of accountancy firm Moore Kingston Smith said these rules can create some counter-intuitive results
Mr Stovold said: “To achieve such a substantial saving when something that is not much more than a large cupboard is packaged up with a high-value flat in prime London means this relief will have crept up the agenda for reform in a future budget.”
