Stamp Duty Land Tax - changes ahead for multiple and mixed-use purchases
Posted by Suzanne Broughton on 14th June 2022
Buyers
looking to pay reduced rates of Stamp Duty Land Tax (SDLT) when buying multiple
residential properties or claiming mixed residential and non-residential use can
expect a tightening of the rules following a consultation by HMRC.
Stamp Duty Land Tax (SDLT) is a self-assessed tax that falls due for payment within 14 days
of the completion of a purchase of a freehold, leasehold or shared ownership residential
property in England and Northern Ireland where the market value is more than
£125,000 (separate taxes apply in Wales and Scotland). It is a progressive tax that is linked to the
purchase price.
The consultation by HMRC has put the spotlight on how SDLT is calculated in two key areas:
- Transactions using the Multiple Dwelling Relief (MDR) rules
- Transactions involving mixed-use purchases of both residential and non-residential property.
Under
the present rules, MDR can be claimed when at least two “Dwellings” (as ‘defined
by HMRC by applying certain indicators, for example whether there is a separate
council tax bill and energy supply, or a lockable front door, as well as the
facilities needed to live independently, such as a toilet or washing facilities)
are purchased in a single transaction, or as part of a series of linked
transactions between the same buyer and seller. SDLT on these transactions is calculated based on the average value of
each dwelling, rather than on their combined value, which can enable significant
savings for a buyer.
Putting
it simply, for example, the SDLT calculation on a single transaction comprising
three freehold dwellings at a total cost of £1.5 million would be £93,750,
where the purchaser is UK resident and does not own any other properties anywhere
else in the world at the time of completion of the purchase. However, if the same
purchaser claimed MDR, the tax would be worked out based on a purchase of 3
individual properties each valued at £500,000, which would reduce the amount
payable to £45,000.
Currently,
lower non-residential rates apply to mixed-use purchases, such as purchases
of a country house with land that is let out to local farmers for grazing, to fast
food shops with flats above, pubs and B&Bs, and large-scale city centre
developments comprising ground floor retail outlets with floors of flats.
Given
that mixed-use purchases are classed as non-residential, as well as benefiting
from the lower non-residential rate of SDLT, buyers can avoid the surcharges due
if they already own a residential property, or they live overseas.
Mixed-use purchases can be combined with MDR, while still qualifying as being
non-residential, unlike claims for multiple dwellings involving only
residential property, which would be calculated to include any surcharges
payable by existing residential property owners or non-UK residents.
Non-residential
property rates are also applied to purchases of six or more dwellings in a
single transaction
Since
all property purchases are unique, it does not follow that general SDLT rules
are applied in all circumstances. Because of the complexity of the rules, which are
set out in the Finance Act 2003, property lawyers recommend that buyers of multiple
dwellings or mixed-use properties seek specialist advice from a professional Tax
Advisor to avoid any push back by HMRC regarding claims that are misrepresented.
For more information on the consultation, please click here, or to discuss a conveyancing matter, please contact our Client Services team on 01752 292201 or email clientservices@wolferstans.com.
Web site
content note:
This is not
legal advice. We intend to provide information of general interest about
current legal issues.