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SDLT: Mixed-use properties – mixed success?

Posted on 3 January 2023

Currently, the top rate of Stamp Duty Land Tax (SDLT) rates for non-residential and "mixed-use" transactions is far lower than the top rates for wholly residential transactions (maximum 5% versus maximum 17%). Predictably, this has led to some taxpayers pushing the boundaries (in HMRC's view) as to what is a "mixed-use" property.

For SDLT purposes, a "mixed-use property" is one that contains both residential and commercial elements, such as a block of flats with a retail unit at street level.

The definition of residential property includes a dwelling plus its "garden and grounds", and many taxpayers have argued that what they are buying includes land that goes beyond the "garden and grounds" of a dwelling. HMRC has successfully taken a number of cases to the Tax Tribunal, arguing they are wholly residential.

However, there has been a recent success by a taxpayer in this regard. In Withers v HMRC [2022] UKFTT, a taxpayer purchasing a medium-sized property situated in 40 acres of grounds self-assessed mixed-use treatment based on a 20-year history of sheep grazing on half the land, and a portion of woodland having been maintained by the Woodland Trust for over a decade. Despite HMRC arguing that the grazing arrangement provided income that was too insignificant to constitute a commercial purpose, the First Tier Tribunal concluded that there was no doubt the grazier was conducting a bona fide business on the land. As a result, the parts used for grazing and managed by the Woodland Trust meant the estate was not wholly residential, so the mixed-use rates applied.  

It remains to be seen whether this will be appealed by HMRC.

HMRC launched a consultation in November 2021 on reforming the mixed-use rules. The consultation discussed potentially using:

  • an apportionment basis, taxing the residential and non-residential portions separately according to their classification; or
  • a threshold basis, whereby a property could only qualify as mixed-use if the non-residential component reaches a certain threshold (e.g. over 50%).

A formal HMRC response to the consultation is awaited.

The concept of apportioning the price between the residential and non-residential elements is not new (this used to be relevant to the now defunct "disadvantaged areas relief") so this might be the most likely option. Of course, it would put the onus on taxpayers to ensure they are satisfied that the splits in price between the different elements are reasonable.

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