Tax Bite - SDLT – Mixed use and MDR update – and “mini-Budget” 2022
Property Tax Bite – SDLT – Mixed use and MDR update – and “mini-Budget” 2022
In our last Tax Bite, we noted that a consultation had been launched on whether to update the SDLT rules around mixed use purchases (i.e. involving both residential and non-residential land) and multiple dwellings relief (MDR), where two or more dwellings are purchased in a single transaction.
The consultation has closed, and for the time being it appears that no changes to the existing rules are being taken forward. That doesn’t mean that the door is necessarily closed for good on this topic however, as HMRC will no doubt still consider that the existing rules can lead to unfair outcomes and attempts at abuse.
As a reminder, then, the default position remains that the non-residential rates apply to the entirety of a transaction where there is any element of non-residential land / property in the subject-matter (or in the case of linked transactions, in any of those transactions). The possibility of claiming MDR on mixed transactions should not be overlooked however in case it gives a better overall SDLT outcome. In most cases for a mixed property purchase including two or more dwellings, the commercial rates can be applied to the non-residential aspect and MDR claimed on the dwellings without having to apply the 3% residential supplement – so long as the non-residential element is not negligible or contrived.
As for MDR itself, this will at least for the time being remain available where two or more dwellings are purchased in a single transaction (or linked transactions) irrespective of the use of the dwellings and whether or not the purported second (or more) dwelling is subsidiary to the main dwelling.
The developing case law in both of these areas, however, continues to favour HMRC. The tax authority is winning the overwhelming majority of cases it takes on MDR, with the bar seemingly being placed ever-higher as to what constitutes a separate dwelling with the necessary “privacy and security” (a concept featuring in several recent decisions) to allow a valid MDR claim. As for what constitutes mixed property, it seems clear now that there is no (reasonable) limit in terms of size as to what can constitute the “garden or grounds” of dwelling, and the key will be to show some active, substantial commercial use of some of the land at the time of the transaction.
Finally for now a brief note on the SDLT announcements in the “mini-Budget” of 23 September, which were not Earth-shattering. The residential nil rate band has been increased (from 23 September) to £250,000, meaning that where the 3% supplement applies that 3% will be on all of the consideration up to £250,000 too (rather than 5% applying between £125,000 and £250,000), and the first-time buyer relief rules have also been further relaxed in terms of both the nil rate band (0% now applying up to £425,000) and the maximum value of property to which the relief can apply (now increased to £625,000).
Posted on 27/09/2022 in Property Tax News