Mixed Use Property SDLT

Simon Misiewicz

Expat & Property Tax Specialist

12th March 2022

Mixed-Use Property SDLT

Stamp Duty Land Tax (SDLT) may be cheaper when purchasing a mixed-use rather than when purchasing a residential property due to the non-residential element.

Mixed-use incorporates both residential and non-residential use.

Non-residential stamp duty rates are applied to mixed-used properties are considerably lower than residential rates.

What are the basics of Mixed-Use Property SDLT?

As property accountants serving thousands of UK landlords that purchase buy to let properties, we know that mixed-use property SDLT is a critical topic for our property investor clients.

When you buy a house, you usually have to pay SDLT at rates between 2-15%.

Purchasing a mixed-use property with an element of residential and non-residential use means the SDLT rates drop to between 2-5%.

Until recently, HMRC advised that land purchased that was not required for the reasonable enjoyment of the house could be treated as non-residential.

As such, on the purchase of a house with a large area of land the lower rates of SDLT were charged.

The purchase of a house with six acres of land divided into a garden, stable, exercise yard for horses and spare land for amenity would have been accepted as mixed-use.

HMRC has changed their position on what constitutes mixed-use to restrict the number of claims from buyers to the mixed-use property and the lower rates of SDLT.

Unless there is an actual business or other non-residential type activity taking place on the surplus land before and after the purchase, HMRC will assert that all the land sold with the property is part of its garden and, therefore, residential use only. The 2-15% SDLT rates would then apply.

HMRC are increasingly challenging property buyers claiming the lower SDLT rates when a dwelling is purchased.

How do I qualify for mixed-use SDLT?

For mixed-use relief to apply, acquiring the right to enter and use the communal garden must have been a ‘land transaction’ (obtaining either an ‘equitable interest’ or a ‘chargeable interest’). The garden must not have been residential property.

Mixed-use relief is available if the acquisition of residential property includes non-residential property.

SDLT is then payable at the lower commercial rate of a maximum of 5%.

What is mixed-use for SDLT purposes?

A mixed-use property incorporates both residential and non-residential use.

The non-residential SDLT rates apply to mixed-use properties.

As these are considerably lower than the residential SDLT rates, the Stamp Duty paid on a mixed-use property can be considerably less than residential.

Read HMRC guidance on SDLT rates to find out more.

It is also important to find out more about Stamp Duty Land Tax for property investors.

What is Multiple Dwellings Relief?

Multiple Dwellings Relief (MDR) is available where an interest in two or more dwellings is acquired in the same transaction.

The consequence of MDR is that the SDLT payable for each dwelling is calculated on the average price of the dwellings.

This means the total consideration is divided by the number of dwellings.

If two dwellings were purchased where the first property is £1 million and the second is £100,000 the MDR means that the SDLT is calculated as the SDLT payable on two transactions of £550,000 each.

This results in paying a lower effective rate of SDLT because SDLT rates increase as the purchase price increases.

Visit here to find out how to claim MDR to reduce SDLT.

Is Stamp Duty paid on commercial properties?

Stamp Duty is a one-off cost that applies to all commercial property transactions over £150,000 when purchasing or renting land and properties throughout England and Northern Ireland.

Stamp Duty Land Tax is a charge that applies when purchasing land. SDLT needs to be paid to HMRC within 14 days of the purchase.

Do you pay SDLT on land?

SDLT is paid on the purchase of an interest in land as a percentage of the purchase consideration.

Different rates apply according to the type of property and the type of purchaser, especially for mixed-use properties.

Can I claim Multiple Dwellings Relief (MDR) on a mixed-use property?

MDR is available on the single transaction purchase of two or more dwellings.

If there are a series of linked transactions, MDR is available only where three or more dwellings are purchased in this way.

Multiple Dwellings Relief is an opportunity for property investors to minimise SDLT when purchasing a residential buy to let.

You need to purchase two or more properties from the same vendor to claim a discount.

This is called a linked transaction.

There is a linked transaction as multiple land transactions occur with the same buyer or seller.

HMRC defines a linked transaction as ‘when two or more property transactions involve the same buyer and seller, they count as linked for SDLT. HMRC may count people connected to a buyer or seller as the same buyer or seller’.

HMRC counts transactions as linked if:

– there is more than one transaction

– the transactions are between the same buyer and seller or between people connected with either of them

– the transactions are part of a single arrangement or scheme or part of a series of transactions

The new changes were introduced in April 2020 state that the SDLT 3% higher rules do not apply to mixed-use properties.

They have been rewritten to reflect that the 3% higher SDLT will not affect you if you own a property that has both residential and non-residential elements.

You can also still use Multiple Dwelling Relief to reduce the SDLT burden of the property, which has a residential element.

Anyone making an acquisition of a mixed-use multiple dwellings property should be able to reclaim overpaid SDLT.

The criteria for claiming are either that:

– they claimed MDR but paid at the wrong rate or

– that they didn’t claim MDR because to have done so would have led them to pay more SDLT based on old HMRC guidance

Property investors who acquired permitted development conversion or buildings with planning permission for conversion (including works or substantial demolition) who paid commercial rates are eligible for MDR on those site acquisitions.

Clients who purchased Greenfield sites (bare land) should also be able to claim MDR.

What are the SDLT rates for commercial property?

We need to understand what commercial means when buying a mixed-use property. You pay SDLT on increasing portions of the property price or consideration when you pay £150,000 or more for non-residential or mixed-use land or property.

HMRC states that you must still send an SDLT return for most transactions under £150,000.

– commercial property such as offices or shops

– property unsuitable for living in

– forests

– agricultural land that is part of a working farm or used for agricultural reasons

– any other land or property that is not part of a dwelling’s grounds or garden

– six or more residential properties bought in a single transaction

You pay residential SDLT rates on agricultural land if it’s sold as part of the garden or grounds of a dwelling.

A mixed-use property has residential and non-residential elements, such as a flat connected to a shop.

You will pay less SDLT on commercial buildings than residential.

The rules for commercial properties are applied if you buy mixed-use properties.

Stamp Duty calculations for commercial properties are very different to residential properties.

Is a holiday let a commercial property for SDLT purposes?

If you are buying a property to rent out as a holiday let, you will pay residential rates of SDLT in most cases.

If you rent it out for more than 140 days each year, you must register for business rates.

SDLT and the 3% SDLT surcharge will apply to holiday lets and serviced accommodation as HMRC state that they are a dwelling.

HMRC will often look at individual cases on their merits involving bed and breakfast establishments or guest houses.

In the vast majority of cases, there is no Stamp Duty levied on purchasing holiday homes.

SDLT doesn’t usually apply to caravans, mobile homes, holiday homes, park homes, or lodges, regardless of value or location.

Holiday homes do not count as main residences and are not classed as domestic property.

Is Stamp Duty tax deductible?

Stamp Duty is tax-deductible but not against Income Tax (for individuals) or Corporation Tax (for Limited Companies). This is because SDLT is a capital expense.

Stamp Duty tax is deductible when the property is sold as it will increase the purchase cost of the property.

This will decrease the gain and the Capital Gains Tax liability (for individuals) or Corporation Tax liability (for Limited Companies).

Stamp Duty is tax-deductible but not immediately.

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