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.

 
If you found this useful, please share it using the icons at the side of the page, or leave a comment below.

Any questions?

If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant