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SDLT: HMRC consultation on Multiple Dwellings Relief and mixed use properties

Posted on 14 January 2022

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:

  1. Multiple Dwellings Relief (MDR). Purchasers of two or more "dwellings" may qualify for MDR, which may reduce purchasers' overall SDLT liability.
  2. 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:

  1. 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).
  2. 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.
  3. 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.

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