Stamp duty and storage units

In December 2025, the First-tier Tribunal (FTT) published its decision in Raj Sehgal and Another v Revenue and Customs Commissioners [2025] UKFTT 1439 (TC). The decision is highly surprising and deservedly received press coverage (’Large cupboard’ saves flat owner £1.7m in stamp duty).

The tribunal (Judge Gauke) allowed an appeal against HM Revenue & Customs (HMRC)’s decision to reject a £1.7m stamp duty land tax (SDLT) reclaim. The reclaim was made because the buyer had bought a lease of a storage unit in addition to an £18m flat in the same building in central London. In a 27-page decision, the tribunal found that the lease of the storage unit (which was less than two metres wide and less than four metres deep) made the transaction “mixed-use” because:

• the purchase of the flat and the storage unit were “linked” transactions; and
• the storage unit was not “residential property”.

The facts

The tribunal began by considering whether there was a single SDLT transaction or two linked transactions. For a single SDLT transaction, it was necessary to determine whether the storage unit lease was appurtenant or pertaining to the flat lease. If so, the storage unit lease would be treated for SDLT purposes as “wrapped up” in the flat lease and the transaction would be wholly residential. The tribunal concluded that there were two linked transactions but did consider whether the storage unit lease was an interest appurtenant or pertaining to the flat lease in case it was wrong. It found that to be appurtenant the storage unit lease must be inseparable from, and have no existence independent of, the flat lease - these facts did not meet the test. Likewise, to pertain, the storage unit lease had to belong to the flat lease. Unusually, the storage unit lease could be assigned or underlet independently of the flat lease and its use was not tied to the appellants’ flat. However, its use was restricted to private residential storage ancillary to the use of any flat in the building.

The result was that everything relied on whether the storage unit lease subsisted for the benefit of a dwelling. If it did, it would be residential property; if not, it would be deemed non-residential property and the appellants would be entitled to the £1.7m reclaim.

The tribunal found that the storage unit lease did not subsist for the benefit of the flat; rather it subsisted for the benefit of the appellants. The appellants could sell the storage unit lease to another flat owner, or sell the flat lease while retaining the storage unit lease, leaving it unused. It is here that the tribunal misdirected itself.

The statute

The relevant statutory test is laid out in section 116 of the Finance Act 2003.

The tribunal struggled to apply sub-section (1)(c) to the facts. It accepted that the reference to “building” in sub-section (1)(a) could include a building that is suitable for use as more than one dwelling. But it found that “subsists for the benefit of a building” in sub-section (1)(c) means “…a particular identified building (or dwelling), not one of a class of dwellings where the identity of the benefited dwelling may change from time to time”. In other words, subsection (1)(c) requires the storage unit lease to subsist for the benefit of the flat.

Interpretation

In my view, this is wrong. The reference to “building” in sub-section (1)(a) expressly includes part of a building used as a dwelling (such as a flat): see sub-section (6). And the storage unit lease is obviously an interest in or right over land that subsists for the benefit of part of a building that is used as a dwelling (any flat in the building). The restrictions on underletting, assignment and use in the storage unit lease make this clear. There is nothing in sub-section (1)(c) that requires the interest to subsist for the benefit of a specific flat or all the flats in the building. Nor is there anything in sub-section (1)(c) to prevent an interest in part of a building from subsisting for another part of the same building.

The better view, in my opinion, is that there was a single SDLT transaction comprising multiple chargeable interests. That there “… were separate legal interests in separate pieces of land that could have been acquired by different persons” does not mean there is more than one transaction. This opens the door to a purposive interpretation of the words “… interest or right appurtenant or pertaining to it that is acquired with it”, which define the “subject matter of the transaction”.

Other case law

In setting out its conclusions, the tribunal confirmed early on that it had considered judicial remarks made on purposive interpretation when seeking to determine the meaning of the statutory provisions in question. But there is no evidence of this during its discussion. The remarks made by the Supreme Court in Hurstwood Properties (A) Ltd and Ors v Rossendale Borough Council and Anor [2021] UKSC 16 on the correct approach to statutory interpretation are instructive, particularly points 15, 16 and 17.

If the tribunal had followed this guidance, it would have found that the storage unit lease fell within the class of interests intended to fall within the meaning of “residential property” as an interest that subsists for the benefit of a dwelling. It is absurd to say that Parliament could possibly have intended that it should not fall within that class of interests.

Appeal

HMRC have confirmed that they will apply for leave to appeal the decision to the Upper Tribunal and the probability of their application being denied or their appeal being dismissed is remote. This case will likely be decided by the Court of Appeal in 2027 if the appellant applies for leave to appeal the decision of the Upper Tribunal. There is certainly enough tax at stake to justify an appeal to the Court of Appeal.

Until the Upper Tribunal releases its decision (estimated in the third or fourth quarter of 2026), reclaim agents will be buoyed by this appeal and likely sell (or mis-sell) ‘no win no fee’ reclaims for buyers of flats in prime and super prime developments with storage units (very common in central London developments).

The FTT in Sehgal foresaw how its decision would be perceived. Judge Gauke said near the end of the decision:

“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. The word ‘entirely’ is not ambiguous, and means that if even a very small proportion of the relevant land is non-residential, then the non-residential rates apply. If this were not the meaning that Parliament intended, we consider that it would not have used this word.”

It is not often that the FTT takes a blinkered and over-analytical approach to construing tax legislation. The FTT usually relies on purposive interpretation to arrive at the ‘right’ answer. This makes the decision in Sehgal so striking.

Advice to practitioners

Residential property lawyers and licensed conveyancers who are approached by flat buyers in the months ahead should be cautious in accepting that the Sehgal decision is a legitimate basis to make a mixed-use self-assessment. In my opinion, the precedent value of the decision is limited, both in terms of its life and its persuasive effect.