Posted 02nd February 2022 by ctatax-admin
We all know the standard ways in which a saving on Stamp Duty can be made – be a first-time buyer, buy and complete on a property before the 30th September 2021, or simply buy a property beneath the threshold of £125,000.
But that’s a narrow and fairly prescriptive list – unless you are already in the process of buying, happen to be a first-time buyer or are buying in one of the cheaper areas of the U.K. So is there any other way in which savings can be made on this unwieldy, complex and often punitive tax?
The good news is yes. The better news is that one of the most common methods is applicable to a wide range of properties, is not dependent on your buyer status or the area of the country in which you buy and doesn’t carry a time limit. It’s known as ‘Mixed-Use Relief’, and it’s applicable more often than you might think.
For starters, what is a ‘mixed use’ property? According to HMRC’s definition, a mixed-use property ‘is one that has both residential and non-residential elements’. They give examples of a flat connected to a shop, doctor’s surgery, or office.
Expanding this slightly, ‘non-residential’ property may include, according to HMRC’s website:
So, any residential property which is purchased and has one or more of these elements as well as the residential element itself may be classified as mixed-use.
When you consider that this includes not just shops but land which has agricultural use and land or property which is not part of the dwelling’s garden or grounds, you begin to appreciate just how wide this definition could be, particularly in rural areas.
A smallholding with land used for grazing or other farming-related work. A larger property with adjacent land besides the garden. And indeed, a property which contains both a flat and some commercial premises.
So what is the impact of Mixed-Use status on the SDLT liability?
Firstly, the SDLT will be calculated using different percentages – essentially it is calculated using the commercial rates, which have a higher zero rate threshold (£150,000) and then apply only 2% on the portion from £150,001 to £250,000 and 3% on any remaining portion above that. A maximum rate of 5% not 12%+ (see below)
In real terms, this means that the difference can be stark – a residential property purchased for £2.5million would result in a potential SDLT liability of £213,750, compared to the same purchase price as a mixed-use property at £114,500.
Properties over £1.5 million in particular, which under residential rates are subject to 12% on the portion above that marker, will see great reductions, as well as being some of the properties more likely to exhibit these qualities.
Historically, there is another issue. In November 2020, HMRC quietly corrected some standing guidance with regards to how the rules for mixed-use properties interacted with the rules on the Higher Rate Additional Dwelling Surcharge, also known as the 3% surcharge.
This additional cost usually applies to purchases of additional residential property, i.e. when you buy a house to let out. HMRC’s historical position, that this charge was also applicable where the additional property was mixed-use, was quietly dropped by the amendment.
This means that for those who have purchased a second home or property to let out which includes non-residential elements before November 2020, it is entirely likely that their solicitor would have followed existing HMRC guidance and insisted that the 3% was added, meaning such purchasers could be due £1000s in refunds from HMRC on erroneously overpaid Stamp Duty.
Additionally, the “New” (1st April 2021) 2% Non-Residents Surcharge also does not apply when a mixed-use property is purchased.
So in summary: A 5% Vs 12% rate, and NO surcharges must make Mixed-Use Property an attractive option on higher-value purchases.
It always pays to be thorough when it comes to tax, and never more so than when the tax is one as complex as Stamp Duty. To make sure your Stamp Duty bill is right the first time.