We understand that the default SDLT position would be based on “non-residential” rates for a “mixed” property, but with an alternative calculation available based on a claim for multiple dwellings relief (“MDR”) in respect of the two dwellings.
If my client does claim MDR, can you confirm the SDLT rates that would apply: specifically, whether this includes additional 3% residential rates? We understand there has been a recent change of view by HMRC in this area.
The building purchase price is £850,000 and the two residential units are valued at £200,000 each.
1. The default calculation
SDLT on the acquisition of mixed business/residential use property applies the same rates and bands for a fully commercial property (s.55, FA 2003), with the SDLT payable by your client as follows:
Total consideration £850,000
First £150,000 @ 0% £0
Next £100,000 @ 2% £2,000
Balance (£600,000) @ 5% £30,000
Total SDLT £32,000
2. Claim for MDR
A claim for MDR in respect of the dwellings requires the residential SDLT rates to be applied to the “consideration attributable to the dwellings” (paras 4 and 5, Sch. 6B, FA 2003). Previously, HMRC’s view was that this would also require the application of the higher 3% rates due for additional dwellings (Sch. 4ZA FA 2003), however they published a change of view on this issue in November 2020 in their SDLT manual as follows:
“The following transactions will not comprise higher rates transactions and the higher rates will not apply. Purchases of: –
- non-residential or mixed residential and non-residential properties, except for a transaction which incorporates more than one dwelling, when
- a ‘Multiple Dwellings Relief’ claim is made in respect of the residential element of the transaction, and
- the non-residential element of the transaction is negligible or artificially contrived”
On this basis, the SDLT due in respect of the two flats, using MDR, would be calculated as follows:
(Consideration attributable to dwellings: £400,000)
SDLT for each dwelling:
Consideration £200,000 each
First £125,000 @ 0% £0
Next £75,000 @ 2% £1500
SDLT with MDR (for both flats) £3000
SDLT is payable on the remaining consideration for the commercial part as a fraction of the total payable for the whole building (calculated above) as follows:
£32,000 x (£450,000/£850,000) = £16,941.
The SDLT payable on the entire property under MDR is therefore £19,941 (giving a net saving with MDR of £15,059, compared with the default calculation above).
Stamp Duty Land Tax applies to acquisitions of property in England and Northern Ireland; similar statutory rules apply for Land Transaction Tax in Wales; in Scotland, the additional dwelling rate (ADS) applies specifically to the consideration for the residential part(s) of a mixed acquisition and the above advice would therefore not be relevant to purchases under Scottish Land and Buildings Transaction Tax (LBTT).
Following a recent consultation, HMRC are currently considering possible reforms of the SDLT regime concerning the issues discussed above, for possible future implementation. You can read further about this here –
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