Dwell, Dwell, Dwell – HMRC Clarifies SDLT Guidance
Whether a property is residential or non-residential for Stamp Duty Land Tax (“SDLT”) purposes is not always clear cut, and this will affect the tax payable and also the reliefs/exemptions that might apply.
Residential rates can be as high as 15% (where the 3% surcharge applies), whilst non-residential rates top out at 5%. Mixed use properties (used for both residential and non-residential purposes) are subject to non-residential rates.
In light of the different rates and reliefs that can apply, it is crucial that the nature of the property is correctly identified at the time of purchase.
HMRC has recently clarified their views and guidance on what constitutes residential property for SDLT purposes – some of the points discussed are detailed below.
Gardens sold separately from their current dwelling
Where land is disposed of separately to a dwelling e.g. where part of a garden is sold off separate to the house and remaining land, the acquisition by the purchaser will be treated as residential, irrespective of whether the piece of land has been fenced/walled off from the old property.
However, a subsequent sale of the land may be non-residential where the land does not include a dwelling.
When does construction/adaptation start?
One Dwelling – Works need to have begun, otherwise it is only bare land.
Multiple Dwellings – For multiple dwellings relief, works need to have begun on each of the properties that will form a part of the claim.
Mixed Development – For a property that comprises say, a retail shop and flats above, work on the building as a whole is sufficient for both the residential and non-residential elements.
At the time of writing, HMRC guidance at SDLTM00365 curently reads “Where, at the effective date, an existing building is being adapted or marketed for, or restored to, domestic use, it is treated as residential property.”
The “marketed for” will be removed from the guidance – HMRC confirms that where a property is marketed for residential use, this will only be one of the various indicators of the nature of the property, and does not form a part of the statutory test of whether a property is residential.
Businesses/trades carried on at home
A home office used for business purposes will not generally affect the residential nature of the property, as HMRC consider that the room remains eligible for use as part of a dwelling.
Where part of the home is completely converted for business use, for example, a home dental surgery, HMRC consider whether there is a clear separation between the parts of the property, and also the degree of conversion work required to turn the “non-residential” part of the property back into residential use.
Where land that would form a part of the garden/grounds of the property is used for business purposes, the question is whether an identifiable use precludes enjoyment of that part of the grounds. A meadow that has been planted with wildflowers under a grant scheme may still be enjoyed by the owners of the property. However, where that same land is leased to a farmer for grazing, this is more likely to prevent the owner’s enjoyment of the land.
Multiple Dwellings Relief
HMRC confirms that where 6 or more properties are purchased as a part of a single contract, they will qualify for multiple dwellings relief, even where completion of each property takes place at different times.
HMRC’s clarification on these points does provide some certainty. However, situations may still arise where the circumstances are more nuanced, and it is necessary to weigh up all of the relevant factors.
If you require advice on the application of SDLT rules and guidance in your situation, please contact a member of our team.