SDLT consultation on mixed use and multiple dwellings relief

Anyone who has bought a farm or a country house with land in recent years will be familiar with the concepts of ‘mixed use’ and ‘Multiple Dwellings Relief’ and how these can potentially reduce a purchaser’s SDLT bill.  

However, both have been abused by tax payers and at the end of November 2021 HMRC launched a consultation on the reform of ‘mixed use’ and ‘Multiple Dwellings Relief’.  The consultation closed in February 2022, and we now await the outcome in respect of the various proposals outlined below.   

What is being proposed?

Mixed use 

Two options were considered in the consultation:

  1. A new apportionment method of calculating tax in mixed-property cases. Apportionment would mean that the residential portion of a mixed property purchase would be taxed as residential property and the remaining, non-residential portion of a purchase would be taxed as non-residential property.  
  2. An alternative approach to apportionment is that the government could introduce a threshold whereby a purchase is only treated as mixed-property if the non-residential element is more than a certain proportion of the consideration, for example more than half. The threshold chosen under this option  would need to be high enough to ensure that what amounted to residential transactions were taxed at the residential rates, and to also prevent attempts to unfairly reduce the SDLT payable on residential property by adding small or token amounts of non-residential land to residential purchases in order to tax the entire purchase as non-residential.

The Institute of Chartered Accountants in England and Wales (ICAEW)’s view on Option 1 is that it is “unfair” and “should be revisited”. They say this “because the calculation methods proposed by HMRC operate differently for purchases of multiple dwellings alongside non-residential property, compared to the purchase of a single dwelling together with non-residential property”.

What is clear, is that whether HMRC opt for option 1 or option 2 – or perhaps even get rid of mixed use altogether – purchasers wanting to take the benefit of the current rules should be ensuring that their transactions proceed quickly.  

NB – Under the proposals, purchases that include six or more dwellings would continue to pay tax at the non-residential property rates on the whole of the purchase.

Multiple Dwellings Relief

There are 4 options being floated in relation to reforming Multiple Dwellings Relief:

Option 1 

Allow MDR only where all the dwellings are purchased for a ‘qualifying business use’. A property acquired for a ‘qualifying business use’ would be one that is acquired for:

  • development or redevelopment and resale; 
  • exploitation as a source of rents.

Consistent with other SDLT reliefs, under this option the government would make MDR conditional on the purchaser satisfying the ‘qualifying business use’ requirement either throughout a three-year post-transaction period, or until the property is sold if earlier. 

Option 2 

Allow MDR only in respect of the dwellings purchased for a ‘qualifying business use’. 

The rules and conditions for this option would be largely the same as for Option 1, but with the difference that MDR would be available only for those dwellings acquired for a ‘qualifying business use’ and not for dwellings not acquired for such a use. 

For example, if four flats are purchased, three of which are intended to be used for a ‘qualifying business use’ with the fourth to be occupied by the purchaser. MDR would not be available for the flat to be occupied by the purchaser and its value would be deducted from the total consideration to arrive at the amount in respect of which MDR can be claimed.

Option 3 

Restrict MDR by introducing a ‘subsidiary dwelling’ rule. 

This would apply to both non-business and business purchasers so that part of a building, or a building within the grounds of another dwelling, would not count as a separate dwelling for the purposes of MDR unless its value is a third or more of the total price attributable to the property as a whole. The MDR calculation would continue to operate as now.

This approach would also resolve an inconsistency between the HRAD (higher rates on additional dwellings) and MDR rules which currently allow an individual purchaser to escape to the HRAD charge, while benefitting from MDR.

Option 4 

Allow MDR only for purchases of three or more dwellings. 

This would be a simple legislative change which would likely reduce the number of incorrect claims being submitted to HMRC which typically rely on individuals claiming that a single dwelling is two dwellings.The ICAEW favours option 3 “that would restrict MDR by introducing a subsidiary dwelling rule to align the MDR rules with the existing rule that applies to HRAD”. Their view is that the “other options would either add significant complexity and uncertainty for purchasers or reinsert a barrier to small-scale investment in residential property”.  Again, it remains to be seen when and how HMRC respond to the consultation in this regard.  But again, prudent purchasers wanting to take the benefit of the current rules should be mindful of the potential risk of delay to their SDLT bill at completion.

How Moore Barlow can help

We have connections throughout the rural sector and strong links with other professionals such as agents, surveyors, accountants and other lawyers. Our lawyers are accessible and approachable, explaining legal matters in plain, easy to understand language. We are happy to hold meetings at your home or place of business, wherever you’re located.

Get in touch with the Landed Estates and Farming team if you have any questions about the SDLT Consultation or Mixed Use and Multiple Dwellings Relief.