‘Mixed-use’ rate – Stamp Duty Tax

When you purchase property in the UK you will normally be subject to paying Stamp Duty Land Tax (“SDLT”) on the purchase. Generally, your SDLT is payable 14 days following completion of the purchase.

Stamp Duty Land Tax is calculated based on a variety of features, including the price paid for the property, whether you are a previous home owner, whether this will be your second home and whether there is a commercial use for the property (or part of it).

The commercial rates of SDLT are much lower than the residential rates for SDLT, making the purchase of commercial property much cheaper in terms of immediate tax cost than the purchase of a comparably priced residential property.

If it can be established that a property comprises both residential land and land not required for residential use, it can qualify for the ‘mixed-use’ rate of SDLT, which can create a significant saving as opposed to the standard residential rate.

For example, take a purchase of a property for £3,000,000, the SDLT payable on this at the standard residential rate would be £273,750. Take the same purchase and apply the mixed-use rate of SDLT and the payable tax would be £139,500, which is an immediate tax saving of £134,250.

Clearly, the ability to claim the mixed-use rate of SDLT is an extremely attractive selling point for a property, and we routinely see agents marketing a property as ‘mixed-use’.

So what qualifies as a ‘mixed-use’ property? This depends on the facts of each case. The property will need to have a use that can be identified as being over and above its residential use.

Take the purchase of a farmhouse with 100 acres and outbuildings. It is likely that this will qualify for the mixed-use rate, particularly if the 100 acres are actively farmed. On the other hand, take the purchase of a house with 10 acres with the exclusive use of the acres being the grazing of horses. Can this still be considered over and above the residential nature of the Property? HMRC is likely to argue not – on the basis that the grounds are part of the house, and the horses are part of the enjoyment of those grounds.

HMRC is now routinely challenging SDLT returns that they consider questionable and is becoming more aggressive in its stance. It is helpful if the land is subject to third party rights which indicate a use other than a residential one. For example, if the ten acres described in the above scenario were let out under a Farm Business Tenancy to a farmer who used them for the grazing of cows, then it suggests that the land let out is not necessary for the residential use of the remainder of the property, and is commercial in its use.

If you are considering making an offer on a property that may qualify for the ‘mixed-use’ rate, please do not hesitate to get in touch, we would be delighted to provide assistance.