Stamp Duty Land Tax (SDLT) classification of properties as residential, non-residential, or mixed-use is crucial as it dictates the applicable SDLT rates. Here’s what you need to know:
Definition of Mixed-Use Property
A mixed-use property combines both residential and non-residential elements. Examples include a flat attached to a doctorโs surgery, an office with residential accommodation above, or a property with a shop on the ground floor and a flat above it.
SDLT Advantage of Mixed-Use Classification
SDLT on mixed-use properties is charged at lower non-residential rates, which can be advantageous, especially when the purchaser already owns a residential property. Importantly, the 3% SDLT surcharge that applies to additional residential properties does not apply to mixed-use properties.
Challenges and Considerations
- Residential Use: Land that forms part of the garden or grounds of a residential property is classified as residential land for SDLT purposes.
- Non-Residential Use: This includes commercial properties like shops or offices, land unsuitable for residential use (e.g., forests), agricultural land used for farming, and other non-dwelling land.
- HMRC Scrutiny: HMRC may challenge claims for mixed-use rates, especially where there’s ambiguity over whether claimed non-residential land genuinely qualifies (e.g., disputes over commercial use versus residential enjoyment).
Practical Applications and Recent Cases
- Genuine Commercial Use: HMRC generally accepts genuine commercial activities on part of the property, such as renting land to a farmer for grazing or running a business from home.
- Challenges: Instances like a public highway or utility poles within a garden may not qualify as non-residential land if they compromise the residential use or enjoyment of the property.
Understanding these distinctions is essential for ensuring accurate SDLT calculations and avoiding potential disputes with HMRC. Properly documenting and justifying the non-residential use of property elements can help secure mixed-use rates.
Partner note: FA 2003, ss. 55, 116.
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