Averdieck v HMRC [2022] TC 8623: Why a Public Right of Way Did Not Make a £3m Residential Property Mixed-Use for SDLT

This page walks the statutory test in FA 2003 section 116, the Averdieck reasoning, the cost-of-failure profile, and the position for taxpayers offered contingent-fee mixed-use claims by SDLT-refund firms. The decision is a leading authority on the public-rights-of-way sub-line of the broader Hyman / Mudan / MHB / Brown mixed-use jurisprudence and the practical takeaway is direct: PROW-only mixed-use claims now lose at the FTT with consistent frequency.

The fact pattern

James and Charlotte Averdieck jointly purchased a substantial residential property and grounds for £3 million in August 2020. They filed an SDLT return in September 2020 on the residential basis. The SDLT figure on the original return was £258,000.

In December 2020, they amended the SDLT return to claim mixed-use treatment under the non-residential rate table at FA 2003 s.55(1B) Table B. The basis for the amendment was that an access lane crossing the property was a public right of way, that the lane provided access to five other residential properties and a farm beyond, and that the appellants had statutory maintenance obligations in respect of the lane. The argument was that these features made a portion of the grounds non-residential land within FA 2003 s.116, which (because the residential / mixed-use rate question is a binary one applied to the whole transaction, not apportioned) moved the whole £3m purchase onto Table B non-residential rates.

HMRC processed the amendment and refunded £119,000. The refund mechanism on SDLT return amendments is largely automatic at the amendment stage; substantive HMRC review typically follows. HMRC subsequently opened an enquiry into the amended return, the amendment was challenged, and the matter went to the First-tier Tribunal. The FTT dismissed the appeal. The £119,000 became repayable.

The statutory test: FA 2003 section 116

The residential property definition for SDLT is in FA 2003 section 116. The relevant subsections are:

• 116(1)(a): "a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use".
• 116(1)(b): "land that is or forms part of the garden or grounds of a building within paragraph (a) (including any building or structure on such land)".
• 116(1)(c): "an interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b)".

The mixed-use argument seeks to take some portion of the property outside one of these three sub-paragraphs. In Averdieck, the argument was that a portion of the grounds (the lane subject to the public right of way, plus arguably the burden the right of way placed on the surrounding grounds) was not 'garden or grounds' within section 116(1)(b) because of the public-access character and the maintenance obligations. The argument therefore engages the section 116(1)(b) "garden or grounds" question, not the section 116(1)(a) building question (the dwelling itself was unambiguously residential).

The rate consequence of a successful mixed-use claim is substantial. On a £3 million purchase, residential SDLT is approximately £258,000 on the standard rates without the additional dwellings surcharge, computed under the residential band-by-band table. Mixed-use SDLT at the Table B non-residential rates (0% to £150,000; 2% £150,000 to £250,000; 5% above £250,000) is approximately £139,500 on a £3 million purchase. The difference is around £118,500 to £119,000, which closely matches the refund HMRC paid out on the Averdieck amended return. The full residential rate table also includes the 5% additional dwellings surcharge where the buyer already owns another residential property; the mixed-use reclassification disapplies the surcharge entirely (the surcharge applies only to residential property under Schedule 4ZA), so for second-home buyers the saving sought is even larger.

The FTT's reasoning

The Tribunal dismissed the appeal on three grounds, each of which is general (not narrowly confined to Averdieck's specific facts):

1. The right of way served the appellants' own residential access. The lane was the appellants' route to their own property and was integral to their residential use of the grounds; it was also used by the public for access to neighbouring properties, but the appellants' own residential use was the primary character.
2. The existence of obligations in respect of land does not exclude that land from being residential property. Landowners routinely bear statutory or contractual obligations on their land (planning conditions, easement obligations, wayleave duties, maintenance covenants under restrictive covenants). These are burdens, not redesignations of the use. The land's character is determined by what it is and how it is used, not by the obligations attached to it.
3. The burden of the obligations was not sufficient on these facts. The Tribunal made a factual finding that the maintenance burden was not so substantial as to take the land outside its residential character. The implication is that an exceptionally heavy burden might in principle do so, but the routine statutory maintenance obligations on a public right of way are unlikely to clear that threshold.

The three grounds combine into a robust reading of section 116(1)(b): an encumbrance over residential grounds (public footpath, bridleway, byway; private easement; wayleave) does not redesignate the underlying land. Mixed-use treatment requires a substantive change in the use of a severable portion of the property, not the presence of a burden on the existing use.

Averdieck in the wider narrowing trajectory

The case-law line on the residential / mixed-use boundary has narrowed materially since 2021. The leading authority is Hyman v HMRC, decided at the FTT at [2019] UKFTT 469, upheld at the Upper Tribunal at [2021] UKUT 68, and confirmed at the Court of Appeal at [2022] EWCA Civ 185. Hyman established the 'in principle suitable' test for the garden-or-grounds question and rejected mixed-use claims founded on minor or marginal grounds-features. The line continued in Mudan v HMRC [2023] UKFTT 317, which held that unmodernised condition alone does not bring a property within mixed-use, and in subsequent FTT decisions including MHB Ltd v HMRC and Brown v HMRC.

Averdieck applies the same narrowing logic to the public-rights-of-way sub-fact-pattern. The Tribunal did not treat the PROW question as raising any new principle: it applied the same general approach to encumbrances and to the section 116(1)(b) garden-or-grounds analysis that the Hyman line had already established. The cumulative effect is that the residual class of fact patterns where mixed-use claims succeed is now narrow: substantive commercial use of a severable portion of the grounds (paddocks let on a formal grazing agreement to a third-party farmer; outbuildings used as third-party commercial premises generating rental income; a discrete portion of the property severed from the dwelling and put to a non-residential purpose). PROW, easement, wayleave, and modernisation-need arguments now consistently fail.

The cost-of-failure profile

The Averdieck amended return locked in a £119,000 refund; the FTT decision required that figure to be repaid. The cost-of-failure profile in mixed-use claims is therefore approximately symmetrical with the saving sought: a £3 million purchase with a contemplated £118,500 saving has a £118,500 exposure on failure. Plus the secondary costs:

• Enquiry costs. HMRC and the appellants' own adviser fees through the enquiry, FTT correspondence, hearing preparation, and the hearing itself. For a fully-contested FTT case these typically run into five-figure sums on each side.
• Penalty exposure under FA 2007 Schedule 24. Inaccurate SDLT returns attract penalties calibrated to the degree of culpability: 0% for an unprompted disclosure of a genuine mistake, up to 30% for a careless inaccuracy with prompted disclosure, up to 70% for a deliberate inaccuracy, and up to 100% for a deliberate and concealed inaccuracy. Whether a refused mixed-use claim is held to be careless or deliberate depends on the specific facts and the quality of the original advice. An aggressive claim on weak facts can readily fall into the careless bracket; a claim taken on bad-faith fact representations can fall into the deliberate bracket.
• Interest. HMRC charges interest on the underpaid SDLT from the original due date. For a multi-year enquiry-and-litigation cycle, the interest figure can be material on a six-figure underpayment.

The contingent-fee model offered by SDLT-refund firms typically captures a percentage of the refund (often 25% to 35%) and shifts none of the downside to the firm. The taxpayer is on the hook for the clawback, the enquiry costs, the penalty exposure, and the interest. Pre-claim independent advice from a chartered accountant or specialist solicitor (not the refund firm) is sensible before any contingent-fee instruction is signed.

What about wayleaves, easements, and other encumbrances?

The Averdieck reasoning is general. An encumbrance over residential land (a public right of way, a private easement granting access to a neighbouring property, a wayleave for overhead electricity cables, a wayleave for telecoms infrastructure, a restrictive covenant requiring maintenance of a boundary feature) is a burden on the land, not a redesignation of its use. ICAEW Tax Faculty published guidance on the analogous wayleave question reaches the same conclusion: a wayleave does not change a property from residential to non-residential.

Mixed-use treatment requires more than an encumbrance. Indicative fact patterns where the analysis may shift include:

• Severable commercial use: a portion of the grounds (paddocks, an outbuilding, a yard) used exclusively for a commercial purpose under a formal commercial arrangement with a third party.
• Third-party occupation: a separate dwelling or self-contained unit within the grounds occupied by a third-party tenant under a residential or commercial lease.
• Substantial commercial infrastructure: a working farm, a commercial nursery, a kennels, or similar where the grounds host a discrete operational business.

The common feature is substantive non-residential use by a party other than the owner-occupier, severable from the dwelling and grounds, not merely an encumbrance or a routine obligation. Each fact pattern is sensitive to the precise documentation, occupation history, and consideration arrangements.

The position for taxpayers approached by refund firms

Aggressive SDLT-refund firms have marketed mixed-use claims heavily over the past several years, including PROW-based claims of the Averdieck type. The post-Averdieck position is that the FTT line is settled against these claims on the typical fact pattern. Taxpayers approached by a refund firm should ask, at minimum:

• Which specific FTT decisions support the firm's analysis on my fact pattern? (If the firm cites Hyman supportively, that should be a red flag; Hyman is the leading authority against mixed-use claims, not for them.)
• What is the firm's fee structure, and which costs (the clawback if the claim fails, the enquiry costs, the FA 2007 Schedule 24 penalty exposure) sit with me as taxpayer?
• Has the firm obtained tax counsel's written opinion on my specific fact pattern, and can I see that opinion?
• What happens if HMRC opens an enquiry and reverses the amendment, as in Averdieck?

A reputable adviser will give straight answers on each of these. Independent advice from a chartered accountant or solicitor on the specific fact pattern, separately from the refund firm, is the right pre-claim diligence step. Our SDLT refund scams page covers the wider context of contingent-fee SDLT-refund marketing.

Where this page sits in the cluster

This is a single-case-analysis page on a leading FTT authority for the public-rights-of-way mixed-use claim. For the broader residential / mixed-use doctrine, see our SDLT mixed-use property classification page. For the related building-habitability sub-line of section 116(1)(a), see our Bewley uninhabitable-property test page. For the broader case-law cluster of recent SDLT and LBTT tribunal decisions, see our companion pages on the Archer LBTT lease-extension transitional decision (A8), the FTT residential SDLT rates with garden easement decision (A14), the FTT late SDLT appeal refusal (A15), and the Horton Hall residential-versus-non-residential dispute (A16). For the contingent-fee SDLT-refund firm context, see our SDLT refund scams page. For the additional dwellings surcharge interaction that mixed-use claims often seek to disapply alongside the rate-table reclassification, see our second-home SDLT additional dwellings surcharge guide.