The rate of SDLT (Stamp Duty Land Tax) payable on residential property purchases can be substantial: non-UK residents may pay up to 17% SDLT on the top 'slice' of the price over £1.5 million. By contrast, the top rate of SDLT on non-residential and mixed-use property is only 5%.
It is unsurprising that taxpayers therefore focus on two areas:
- Multiple Dwellings Relief (MDR). Purchasers of two or more "dwellings" may qualify for MDR, which may reduce purchasers' overall SDLT liability.
- Whether a property is "mixed-use", rather than solely residential.
HMRC are challenging both MDR and mixed-use claims with increased frequency. For example, HMRC challenged situations where a taxpayer has ostensibly purchased a house and argued that MDR applies due to the existence of an ancillary residential unit (e.g. a "granny flat"). Similarly, HMRC have challenged various "mixed-use" claims, where it considers a person has simply purchased a house with extensive garden and grounds.
HMRC are now looking to tighten up the rules on mixed-use properties and MDR. On 30 November 2021, HMRC published a consultation paper on SDLT, seeking views on proposals that would limit the circumstances in which MDR can be claimed.
HMRC have proposed several options with respect to MDR:
- Restricting MDR to purchases where dwellings are to be used for certain qualifying business purposes (i.e. precluding relief where there is an element of owner occupation).
- Introducing a "subsidiary dwellings" rule, under which a building (or part of a building) within the grounds of another dwelling would only count as a separate dwelling for MDR purposes if its value meets a certain threshold.
- Allowing MDR only for purchases of three or more dwellings, as opposed to two or more dwellings.
With respect to mixed-use purchases, HMRC propose introducing a system of apportionment. This would be a new method of calculating SDLT, as the purchase price would be apportioned between the residential and non-residential elements. The residential part of the property would then be taxed at the residential rate (including potential surcharges for non-resident purchasers or purchasers of second homes) and the remaining non-residential property would be taxed at the lower non-residential rate.
Alternatively, HMRC propose that a purchase would only be considered "mixed-use" if the non-residential part of the property meets a certain threshold. This threshold could be high – HMRC suggest as much as over 50% of the consideration.
The consultation ends on 22 February 2022.