SDLT is a complex tax and never more so than when considering a property which may be mixed use.
A mixed use property is one which consists of both residential and non-residential elements. The most common type of mixed use property would be a shop with a flat above or at least a mixture of residential and commercial property but this is not the only time a conveyancer should be considering whether the non-residential rate of SDLT should apply.
A rural property should be ringing alarm bells for conveyancers, they need to fully consider the property in its entirety to ascertain whether there is any scope for it to be mixed use as opposed to wholly residential. The question in every conveyancer’s mind when dealing with a purchase of a rural property should be:
“Is there land which does not form part of the garden and grounds?”
This may sound easy but it is far from it.
Whether land forms part of the gardens and grounds of the residential dwelling is complicated and a claim that a property is mixed use will inevitably be subject to a compliance check by HMRC. Some examples of the types of land which could be considered non-residential are:
- Land separated from the house and garden by a road.
- Land which is used by the public on a regular basis.
- Land which does not benefit the residential property.
- Land which is used for a commercial purpose and has a financial benefit to the owner.
There have been a number of Tribunal decisions considering this area and there have been mixed results, but it is an area in which Taxpayers have had some success in overturning HMRC’s preconceived ideas of what constitutes mixed use and what is wholly residential.
It is important to correctly assess the applicable rate of SDLT, the non-residential rate will invariably result in a lower payment of SDLT due to the fact the rates are capped at 5% but add to this the fact that a mixed use property cannot be subject to the Higher rates of SDLT (HRAD) and the financial benefit to your client increases substantially.
Conveyancers could face a negligence claim or in the very least a disgruntled client if they miss a mixed use opportunity, but if they claim mixed use incorrectly the cost to the client and therefore the conveyancer will be huge with HMRC not only being able to recover the underpaid tax but they will also charge interest (currently 8.25%) and have the ability to impose penalties which can range from 30% to 100% of the underpaid tax depending on the nature of the error.
This is an area where conveyancers should be seeking specialist advice, not only will this ensure that the correct amount of SDLT is paid but perhaps more importantly, it will mean that the conveyancer can demonstrate that they met the required professional standard by engaging a qualified specialist advisor.
Louise Wise, Relatus
4 responses
In urban areas, might a buyer receive relief when buying a property that comes with a garage-en-bloc? It’s detached from the dwelling(s) and its grounds, and could be used for storage or to park/repair vehicles.
HMRC’s guidance states that any land which benefits the residential dwelling is to be treated as residential and they state that this specifically includes a separate garage in a block, meaning that the transaction would likely be considered wholly residential.
I would also draw your attention to the case of Thomas Kozlowski v HMRC [2023] UKFTT 711 (TC) which considered an appeal by a Taxpayer claiming that a lease granted in relation to a detached garage on the day of completion to enable the garage to be used for storage of books meant that the transaction was mixed. The Tribunal dismissed the appeal due to the fact that the lease did not exist at the point of completion and did not constitute a genuine commercial agreement.
Garages are an interesting matter, in some parts of the country, there are some that are easily for sale/being sold for over £40k and being used for the purposes of storage. Some of these are coming out of a residential property title via TP1 and I’ve had some discussions with people as to whether or not these are counted as residential or mixed use.
So ultimately we are in trouble if we do and if trouble if we don’t. If we claim mixed use we could be in trouble for underpayment, if we don’t claim mixed use we could be in trouble with overpayment. We all know that it is very hard to get clients to part with money especially on SDLT and even if they do, how do we know that the firm is legitimate and qualified to provide such advice to clients? Perhaps some suggestions can be put forward as to firms prepared to provide such advice?