Stamp duty changes ahead for multiple and mixed-use purchases

Property buyers looking to pay reduced rates of stamp duty 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 payable in England on residential property transactions where the market value is more than £125,000, with a tiered scale related to the purchase price, and with different rules if you’re a first time buyer, or buying an additional home or a buy-to-let, through a company or when resident overseas.   Non-residential property transactions are subject to different rates, which are presently lower than residential rates.

The consultation by HMRC has put the spotlight on how tax is calculated in two key areas:  transactions using the Multiple Dwelling Relief (MDR) rules and those involving mixed-use purchases of both residential and non-residential property.

Under the present rules, MDR can be claimed when at least two dwellings are purchased in a single transaction, or as part of a series of linked transactions between the same vendor and purchaser.  This allows the rate of SDLT to be calculated based on the average value of each dwelling, calculated individually and added together, rather than on their combined value.

For example, rather than calculating stamp duty on a single transaction of three properties at a total cost of £1.5 million, the tax could be calculated on three individual properties valued at £500,000 each.  This can enable significant savings as stamp duty rates are tiered according to property value.

Savings can also be made when claiming for mixed-use purchases, which are subject to SDLT at lower non-residential rates, even where the amount of non-residential land in the purchase is very small. As HMRC highlights, mixed-property purchases can range from a country house with some land let for grazing through fast food shops with flats above, pubs and B&Bs, to large-scale city centre developments comprising ground floor retail outlets with floors of flats above.

Because mixed-property purchases are classed as non-residential, as well as benefiting from the lower non-residential rate of SDLT, purchasers can avoid the surcharges due when an individual already owns residential property, or is currently living overseas.

Also, mixed-property purchases can be combined with MDR, while still qualifying as being non-residential, unlike multiple dwelling claims involving only residential property, which would be calculated to include any surcharges payable by existing residential property owners or non-UK residents.

Purchases of six or more dwellings in a single transaction are taxed as purchases of non-residential property.

For the purposes of SDLT, there is a definition of what is meant by a ‘dwelling’ and in deciding if it qualifies HMRC will use a number of indicators, such as 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.

Change is undoubtedly coming, and there may be a motivation to move on with any purchases where you may be able to claim these reliefs.

When stamp duty was introduced, the tax charges on residential and non-residential property were similar so there was no significant tax advantage, but now there is a big difference once property values are over £1m, or where higher rate additional dwelling rates apply.

However, this is a complicated area and it’s worth getting specialist professional advice on the topic.  Mixed-use purchases and multiple dwellings relief is not automatic and must be claimed through a land transaction return and non-specialist conveyancers may not be aware of the potential to make a claim, or what constitutes a legitimate claim and HMRC will push back on anything that is misrepresented.

Some examples of non-residential usage claims rejected by HMRC are outlined in the consultation document, including a room above a detached garage used as an office by the purchaser, when part of a large, detached, six-bedroom home; leasing the garage of a suburban, semi-detached property to a company for storage; and a paddock area behind the back garden of a substantial residential property in an affluent location being used for informal grazing by a neighbour’s horse.

To discuss this, or any other property related matter, please contact Jeremy directly on 01483 887766, email info@hartbrown.co.uk or start a live chat today.

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Jeremy Jupp

Partner, Residential Property

Jeremy has extensive knowledge in Residential Property having qualified in 1992. He is committed to providing a proactive, friendly and positive approach, with nearly 30...

Jeremy Jupp- Partner, Residential Property

Partner, Residential Property

Jeremy Jupp

Jeremy has extensive knowledge in Residential Property having qualified in 1992.

He is committed to providing a proactive, friendly and positive approach, with nearly 30 years’ experience as a residential property specialist. Jeremy strives to communicate clearly and effectively with all those involved in transactions he deals with, in order to achieve the best outcome for his clients. He endeavours to find pragmatic solutions to problems wherever possible.

Jeremy believes in building up a strong relationship with his clients in order to understand their aims and needs, and work with them to achieve these so far as possible.

Memorable cases Jeremy has worked on include completing a purchase within a week from instruction where his client was given a great incentive on a new build property if he completed that quickly.

In 2014, Jeremy was involved the sale of a property where a Local Authority had acquired a strip of land along the frontage in the 1960s for potential road widening. They had granted a license over the land in exchange. The road widening never took place and the scheme had been abandoned, however, the buyers’ solicitors were not happy with the license arrangement that remained in place. Jeremy drafted a conditional contract clause which gave his client 9 months to resolve the issue with the Local Authority and to pay any premium agreed out of the exchange deposit. After lengthy negotiations with the Local Authority which involved taking Counsel’s Opinion in relation to the status of the license, an agreement was reached with the Local Authority just in time to enable him to give notice to the buyers’ solicitors to complete the sale.