The distinction between "residential" and "non-residential and mixed use" land has never been more important, particularly when it comes to SDLT rate. The top rate of SDLT for residential property is currently 15% (when the additional 3% rate applies), versus a top rate of (just under) 5% for non-residential and mixed use property. This distinction could become even more acute given the Prime Minister's comments in the last few days about introducing a further SDLT surcharge of between 1 and 3% for non-residents acquiring homes.
HMRC has recently clarified its view of what is 'residential property' for SDLT purposes. Amongst other things, HMRC has clarified that:
- Where land is sold separately to a dwelling, it will remain 'residential' irrespective of whether it has been segregated by a fence or wall making it inaccessible to the seller. This would apply, for example, where a person sells part of their garden whilst keeping their house. However, any subsequent sale by the buyer of this land may be classed as non-residential.
- Where land that would otherwise form part of the garden/ grounds of the property is used for commercial purposes it may qualify as mixed use to the extent there is an "identifiable use [that] precludes enjoyment [by the property owner] of that part of the grounds". This is relevant, for example, where a person buys property/land of which some land is used for agricultural activities. HMRC provides the example that the existence of an adjacent meadow planted with flowers could still be enjoyed by the home owner and therefore would not make a sale of the house and meadow mixed use. However, a field used for grazing by way of a formal licence for value is more likely to prevent the owner from enjoying that part of the land; so this could make a sale "mixed".
- Where property is "marketed for" use as residential, this merely forms part of the various indicators taken into consideration in establishing if a property is 'residential'. It is not part of the statutory test, and HMRC are updating their guidance to remove references to this. This is a helpful confirmation of the approach that we have adopted for a number of years.
- The purchase of six or more dwellings will form part of a 'single transaction', and qualify for the non-residential SDLT rates (often important on large residential portfolio deals), where they are part of a single contract even if they are completed at different times. Again, this is helpful in giving certainty to investors.