When it comes to Stamp Duty Land Tax (SDLT), the classification of a property as residential, non-residential, or mixed-use is crucial, as it determines the applicable SDLT rates. Mixed-use properties, which combine residential and non-residential elements, have gained attention recently due to their potential benefits from an SDLT perspective. In this article, we’ll explore the concept of mixed-use properties and shed light on their implications for SDLT rates, while also addressing some practical considerations and challenges that may arise.
Defining Mixed-Use Properties
A mixed-use property refers to a property that incorporates both residential and non-residential usage. Examples provided by HMRC include a flat attached to a doctor’s surgery or office, as well as a property consisting of a shop with a residential flat above it.
SDLT Advantage of Mixed-Use Properties
From an SDLT standpoint, having non-residential usage alongside a residential property can be advantageous. SDLT is charged at the lower non-residential rates for mixed-use properties. Furthermore, when a purchaser already owns a residential property, accessing the non-residential rates can help avoid the additional 3% surcharge.
Determining Residential and Non-Residential Usage
Residential property, for SDLT purposes, includes land that forms part of the garden or grounds. Hence, if the land is a part of the garden or grounds, it is deemed residential land.
Non-residential property encompasses various categories:
- Commercial property, such as shops or offices.
- Properties that are not suitable for habitation.
- Agricultural land used for farming or agricultural purposes.
- Other land or property not considered part of a dwelling’s garden or grounds.
Challenging Aspects and HMRC’s Stance
In practice, challenges may arise when attempting to claim mixed-use rates for properties with a small portion of land claimed as commercial. HMRC might question whether the land, purportedly non-residential, genuinely qualifies as such. This issue often arises when amended SDLT returns are filed to secure a refund for previously paid SDLT at residential rates.
Recent cases have seen HMRC accepting land used for grazing and let to a farmer as non-residential. However, they disputed the classification of a lane running through a property as non-residential, as the footpath did not compromise the reasonable enjoyment of the dwelling. A similar argument was applied to a garden pole supporting electricity cables.
Practical Considerations and Caution
Many businesses operate from home, and if there is legitimate commercial use of part of the land, securing mixed-use rates should not be problematic. However, HMRC is vigilant about scrutinizing weak or unsubstantiated claims.
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