Back in the days when stamp duty (not stamp duty land tax – SDLT) applied to the acquisition of residential property, things were relatively straightforward. The rate of stamp duty was a fixed percentage depending on which band the property value fell in, and we didn't worry too much about the difference between residential and non-residential/mixed-use property (other than when we were trying to claim the now defunct "disadvantaged areas relief"). Even with the advent of SDLT from December 2003, while practitioners had to get to grips with a new self-assessed tax – complete with a requirement to file a tax return – the legislation did introduce a more sensible "slice" system (with different rates of tax on different parts of the price) and the top rate of SDLT was still only 4% across the board.
Fast forward to 2025 and things are much more complicated. Here are a few of the things you have to contend with now:
Residential or non-residential – that is the question.
Today, the distinction between what is residential and non-residential/mixed-use land is very important. For a non-UK resident, this can be the difference between a top rate of tax (on the top "slice" of the price) of 19% (residential) versus 5% (non-residential). The Tax Tribunal is choc-a-block with cases where HMRC are challenging taxpayers who have taken what HMRC views as too aggressive a position on what is non-residential/mixed-use property. With the occasional exception, HMRC are winning most of the cases it challenges, although this is partly due to this area having provided rich pickings for claims companies, who aggressively marketed their services to refile tax returns as non-residential/mixed-use for a commission.
Clearly a house with a large garden does not automatically become mixed use, so many cases would seem to have an obvious answer. The drafting states, broadly, that a house together with its "garden or grounds" is residential property. But it follows that if the property includes land which goes beyond "garden and grounds" then the property overall may be mixed-use rather than residential. So, what if you are buying a country estate with a commercial operation on part of it? The legislation does tend to tax this kind of transaction differently than a straightforward residential property purchase.
Higher or lower?
The introduction of the higher rate on additional dwellings ("HRAD") - now an extra 5% on each slice of the price where it applies – has added real complexity to residential deals. A company buying residential property will always pay HRAD (or even an anti-avoidance flat rate of 19%), but whether an individual pays it, will depend.
If they own no other dwelling, then HRAD may not apply; but it is not just their own circumstances that could affect the rate of tax payable. HRAD is likely to apply if their spouse has an interest in another dwelling (anywhere in the world!) or if a joint purchaser does, or if their minor child has an interest in a dwelling (e.g. as the beneficiary under certain forms of trust). HRAD may not apply if the "replacement of main home" relief applies, but the relief is quite mechanical and all the conditions must be met.
Who lives here?
A person based outside the UK will pay an additional 2% surcharge on buying residential property. Given that a non-resident landlord will almost certainly have an interest in another dwelling somewhere in the world, this means that they are likely to pay both HRAD and this non-resident surcharge, resulting in each slice of the price increasing by 7% - so a top rate of 19%.
It will be apparent that a conveyancer will therefore often require the support of a tax specialist in order to get the SDLT analysis right, and we at Mishcon de Reya have a team of real estate tax specialists who are fully conversant in all areas of tax, including SDLT. Please always ask your usual contact at Mishcon de Reya for any help you need in this area.