HMRC Garden Substation Tax Dispute: London Property Buyer Wins £341,750 Stamp Duty Battle

Published: 30 October 2026

A London property company has won a £341,750 stamp duty dispute against HM Revenue and Customs (HMRC) after a tax tribunal ruled that an electricity substation located in the grounds of a £7.75 million Hampstead property meant the purchase qualified as mixed-use rather than wholly residential.

The decision has drawn attention to how commercial structures, third-party leases and restrictions on land use can influence the amount of Stamp Duty Land Tax (SDLT) payable when buying property in England.

In the case of Inngrays Ltd v HMRC [2026] UKFTT 1478 (TC), the First-tier Tribunal rejected HMRC’s argument that the land occupied by an electricity substation formed part of the residential property’s garden or grounds.

Instead, the tribunal concluded that the substation performed a separate commercial function, allowing the purchaser to retain the lower SDLT liability originally declared.

The ruling, issued in October 2026, highlights the complexities surrounding mixed-use property transactions and could become an important reference point in future disputes between property buyers and the tax authority.

How Did the HMRC Garden Substation Tax Dispute Begin?

The dispute arose after Inngrays Limited purchased a substantial semi-detached period property at 59 Fitzjohns Avenue in Hampstead, north London, for £7.75 million on 29 May 2024.

The building contained five independent residential flats, four of which were occupied by tenants at the time of purchase.

However, the land behind the building also contained an electrical substation housed in a brick structure bearing a warning sign reading “Danger of Death”.

The substation was not operated by the property’s residential occupants. Instead, the land had been used for electricity distribution purposes since at least 1963 and was subject to a separate lease.

At the time of the transaction, London Power Networks plc held a 20-year lease commencing in June 2010, paying annual rent of £1,250 and enjoying exclusive possession of the relevant land.

The electricity company also held rights to access the site for operational purposes, including maintenance, repairs and replacement of electricity distribution equipment.

These arrangements became central to the legal dispute because the purchaser argued that the substation land was not part of the garden or grounds used by the residential tenants.

When Inngrays submitted its SDLT return on 11 June 2024, it classified the acquisition as a mixed-use transaction and paid £377,000 in stamp duty.

HMRC subsequently investigated and concluded that the entire property should be treated as residential.

The tax authority issued a closure notice demanding an additional £341,750, which would have increased the total SDLT liability to £718,750.

Inngrays challenged the assessment, arguing that the electricity substation was a distinct commercial element of the property.

The disagreement eventually reached the First-tier Tribunal, where the central question was whether the land occupied by the substation legally formed part of the residential grounds.

Why Did the Tax Tribunal Rule Against HMRC?

The appeal was considered by tribunal judges Michaela Snelders and Noel Barrett, who examined the legal status, historical use and physical characteristics of the substation.

Michael Collins, acting as counsel for Inngrays and instructed by McCarthy Denning, argued that land used independently of the residential property should not automatically be regarded as part of its grounds.

HMRC, represented by Fiona Man of its Solicitor’s Office, maintained that commercial activity and third-party occupation did not necessarily prevent land from being classified as residential grounds.

The tribunal acknowledged that determining whether land forms part of a dwelling’s garden or grounds requires consideration of multiple factors.

However, the judges found that the substation had been independently occupied for electricity distribution purposes for more than six decades.

The electricity company enjoyed exclusive possession, while the residential tenants had no rights to occupy or use the substation land.

In their published reasoning, the judges described the arrangement as “a case of complete exclusion.”

The tribunal also found that the substation did not support the residential use of the five flats. Its purpose was electricity distribution as part of a wider commercial network rather than providing an amenity to the building’s occupants.

The judges concluded that the substation performed a separate commercial function and was not part of the residential grounds under Section 116(1)(b) of the Finance Act 2003.

As a result, the acquisition included both residential and non-residential property, meaning the mixed-use classification was correct.

The appeal was allowed, overturning HMRC’s additional £341,750 SDLT assessment.

What Have Property Tax Experts Said About Similar Disputes?

The Hampstead decision comes amid a series of tribunal cases examining whether particular parts of residential property should be treated as non-residential for stamp duty purposes.

Tax professionals have previously highlighted how seemingly minor features can have significant financial consequences when they are legally and functionally separate from a home.

Tim Stovold, Head of Tax at accounting firm Moore Kingston Smith, commented on a separate mixed-use SDLT dispute involving a public towpath earlier in 2026.

He told the Telegraph:

“This is another in a series of cases where a taxpayer was able to argue that their purchase included a house and something else.”

Stovold’s observations were made in connection with the earlier towpath case, not specifically the Inngrays judgment. Nevertheless, they illustrate the broader legal issue now emerging from the Hampstead ruling.

In the towpath dispute, homeowners successfully argued that a section of public footpath crossing their land was not part of their private residential grounds.

The distinction between residential enjoyment and independent third-party use also proved central in the substation case.

Stovold has previously explained that the strength of a mixed-use argument can depend on whether the non-residential land is genuinely separated from the homeowner’s control and whether meaningful commercial activity occurs there.

The latest judgment demonstrates the significance of such evidence, particularly where a commercial lease predates a property transaction by several decades.

For property solicitors and tax advisers, the key lesson is that the physical presence of a commercial structure is not necessarily sufficient. The substance of the legal arrangements and the actual use of the land matter.

HMRC’s own Stamp Duty Land Tax guidance on land use recognises that genuine commercial activity and third-party leases can indicate non-residential use, although the circumstances of each transaction must be considered individually.

Could the Ruling Affect Other London Property Buyers?

The outcome could be particularly relevant to owners, investors and developers purchasing residential buildings that also contain electricity infrastructure, telecommunications installations, commercial buildings or land occupied independently by third parties.

Mixed-use property transactions are subject to different SDLT rates from wholly residential purchases.

Under the current rules, the SDLT rates for non-residential and mixed-use freehold acquisitions are 0% on the first £150,000, 2% on the next £100,000 and 5% on the remaining consideration.

This can result in substantial differences in tax liability for high-value transactions.

However, the Hampstead decision does not mean that every property containing an electricity substation automatically qualifies for lower stamp duty.

The tribunal’s conclusion depended on several particularly strong features, including the longstanding commercial occupation, exclusive leasehold rights, independent function and complete exclusion of residential occupants.

A small utility installation that primarily serves a house, or land subject only to occasional access by an electricity company, may be treated differently.

The ruling is also a First-tier Tribunal decision, meaning it is not a universally binding precedent and could be challenged through further legal proceedings.

Another important distinction concerns Multiple Dwellings Relief, which Inngrays claimed under the rules applicable to its May 2024 acquisition.

That relief was abolished for most transactions completing on or after 1 June 2024, subject to transitional provisions.

The tribunal’s dispute concerned the property’s residential or mixed-use classification, rather than the availability of Multiple Dwellings Relief.

This means buyers considering transactions in 2026 must apply the rules currently in force rather than assuming that every element of the Inngrays tax calculation remains available.

For London property investors, the decision highlights the importance of investigating unusual land arrangements before completing a purchase.

A separate Land Registry title, commercial lease, historic utility agreement or restriction preventing residential use may all warrant closer examination, although none establishes mixed-use status on its own.

The broader significance of the HMRC garden substation tax dispute lies in how the tribunal distinguished genuine commercial occupation from land that merely happens to contain infrastructure.

While the £341,750 victory represents a substantial financial outcome for Inngrays Limited, its lasting importance may be the additional clarity it provides for assessing complex property transactions.

The ruling reinforces that stamp duty treatment depends on the legal and practical circumstances of the land at the time of purchase, rather than simply the property’s appearance or its overall residential character.

For HMRC and property buyers alike, the case illustrates how the definition of a garden or grounds can become a decisive issue in disputes involving hundreds of thousands of pounds.

The full decision is available in Inngrays Ltd v HMRC [2026] UKFTT 1478 (TC).