Stamp Duty Land Tax – changes ahead for multiple and mixed-use purchases
Buyerslooking to pay reduced rates of Stamp Duty Land Tax (SDLT) when buying multipleresidential properties or claiming mixed residential and non-residential use canexpect 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 daysof the completion of a purchase of a freehold, leasehold or shared ownership residentialproperty 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 thepurchase price.
Theconsultation by HMRC has put the spotlight on how SDLT is calculated in two keyareas:
- Transactionsusing the Multiple Dwelling Relief (MDR) rules
- Transactionsinvolving mixed-use purchases of both residential and non-residential property.
Underthe present rules, MDR can be claimed when at least two “Dwellings” (as ‘definedby HMRC by applying certain indicators, for example whether there is a separatecouncil tax bill and energy supply, or a lockable front door, as well as thefacilities needed to live independently, such as a toilet or washing facilities)are purchased in a single transaction, or as part of a series of linkedtransactions between the same buyer and seller. SDLT on these transactions is calculated based on the average value ofeach dwelling, rather than on their combined value, which can enable significantsavings for a buyer.
Puttingit simply, for example, the SDLT calculation on a single transaction comprisingthree 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 anywhereelse in the world at the time of completion of the purchase. However, if the samepurchaser claimed MDR, the tax would be worked out based on a purchase of 3individual properties each valued at £500,000, which would reduce the amountpayable to £45,000.
Currently,lower non-residential rates apply to mixed-use purchases, such as purchasesof a country house with land that is let out to local farmers for grazing, to fastfood shops with flats above, pubs and B&Bs, and large-scale city centredevelopments comprising ground floor retail outlets with floors of flats.
Giventhat mixed-use purchases are classed as non-residential, as well as benefitingfrom the lower non-residential rate of SDLT, buyers can avoid the surcharges dueif they already own a residential property, or they live overseas.
Mixed-use purchases can be combined with MDR, while still qualifying as beingnon-residential, unlike claims for multiple dwellings involving onlyresidential property, which would be calculated to include any surchargespayable by existing residential property owners or non-UK residents.
Non-residentialproperty rates are also applied to purchases of six or more dwellings in asingle transaction
Sinceall property purchases are unique, it does not follow that general SDLT rulesare applied in all circumstances. Because of the complexity of the rules, which areset out in the Finance Act 2003, property lawyers recommend that buyers of multipledwellings or mixed-use properties seek specialist advice from a professional TaxAdvisor to avoid any push back by HMRC regarding claims that are misrepresented.
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