It is not uncommon for overage agreements to be placed on land, particularly where it is felt there could be development opportunities in future and the…
On 30 November 2021, HMRC published a consultation paper on proposed changes to two areas of the stamp duty land tax (SDLT) regime. The consultation seeks views on the current mixed-property transaction and multiple dwellings relief (MDR) policy and suitable alternatives. Click here for our MDR article.
Mixed-property purchases are ones which comprise of both residential and non-residential property. Mixed-property transactions can range from a country house with some land let for commercial grazing, bed and breakfasts and pubs, to fast food shops with flats above.
Purchasers of mixed-property are currently wholly charged to the non-residential rates of SDLT, which are lower than the residential rates. The maximum non-residential rate is 5%, compared to up to 17% for high value residential transactions. This current policy means that a purchaser is able to pay the lower non-residential rates of SDLT even where the purchase consists almost entirely of residential land and there is an element of non-residential property.
The consultation proposes changes to the approach to mixed-property in order to provide greater fairness and reduce the increasing number of incorrect claims and claims that abuse the current policy.
Apportionment – a response to unfair and abusive mixed-property treatment
HMRC is seeking views on a new apportionment method of calculating tax in mixed-property cases.
Apportionment would mean that the residential portion of a mixed-property purchase would be taxed as residential property and the remaining (non-residential) portion of a purchase would be taxed as non-residential property. The proposed method of calculating SDLT on mixed-property transactions is similar to the Scottish land and buildings transaction tax (LBTT).
If apportionment is introduced, the government expects that the higher 3% surcharge rates for additional dwellings and the non-residential stamp duty land tax surcharges would apply to the residential element of mixed purchases if appropriate.
Where transactions include six or more dwellings, it is expected that purchasers will continue to pay SDLT at the non-residential property rates on the whole of the purchase unless they elect to claim for multiple dwellings relief.
Apportionment method impact
HMRC believes that the new method of calculating the tax is more equitable as the amount payable would reflect the underlying economic nature and use of the land being purchased to a much greater extent. It is thought that this will also prevent purchasers and SDLT reclaim agents from making questionable or abusive claims.
Value apportionments may be judgemental. Therefore, one of the obvious drawbacks of this method of calculating SDLT is that a purchaser may require professional valuation services.
Alternative to the apportionment
An alternative to the apportionment method that HMRC mentions is to introduce a threshold whereby the purchase is only treated as mixed-property if the non-residential element is more than a specific proportion of the consideration, for example more than a half. The threshold chosen under this option would need to be large enough to guarantee that residential transactions are taxed at the residential rates, and to also prevent efforts to unfairly decrease the SDLT payable on residential property by adding small or token amounts of non-residential land to residential acquisitions.
What does this mean for you?
With proposed changes to the legislation, it is becoming increasingly difficult to navigate through the nuances of SDLT policy. If the changes are implemented, then many purchasers are likely to see an increase in SDLT payable on such purchases.
Tax advisers play a crucial role in identifying SDLT savings that can benefit the purchaser. If you are thinking of buying a property or have recently purchased a property and believe that mixed-property treatment might apply, feel free to contact us to discuss. We will be happy to assist you with professional, practical advice tailored to your case.