Different rates of stamp duty land tax (‘SDLT’) apply to residential and to non-residential property.
If a purchase contains both residential and non-residential elements (a ‘mixed purchase’), the SDLT position can be complicated. But HMRC have changed their practice and, unusually, it reduces the SDLT. If you have paid tax on the previously-published basis you may be able to claim a refund.
The default position on a mixed purchase (the classic case is a parade of shops with flats over) is that the ‘non-residential’ rates apply. However, if there are at least two ‘dwellings’ involved, you can elect to pay SDLT on the non-residential part at non-residential rates and on the residential part at residential rates.
Hitherto, it’s been considered that those residential rates are subject (with rare exceptions) to the 3% ‘SDLT surcharge’. So, in many cases the election has not been appropriate. But HMRC have now changed their mind: the surcharge does not apply in these circumstances.
The result is that an election will save tax in many more cases; and where the election was already worthwhile, it is now likely to be even more so. In some instances, an SDLT rate as low as 1% could now apply to the residential element of the transaction.
There is a caveat: if the non-residential element of the transaction is negligible or artificially contrived then all bets are off, and the 3% surcharge will still apply.
- If you are buying a mixture of residential and commercial property in a single transaction or linked transactions, you should ensure that your solicitor considers the application of the above when completing your SDLT return.
- If you have in the past purchased residential and commercial property in a single transaction or linked transactions, you may be able to file an amended SDLT return and claim a refund of some of the SDLT paid. But be quick: the time limit for submitting an amended return is 12 months after the SDLT return filing date, which is 14 days after the effective date of the transaction (normally completion).
- If it is too late to amend an SDLT return, it may still be possible to make a claim up to four years after the effective date of the transaction, though the particular technical circumstances of this change mean that it is likely that acceptance of such a claim would be at HMRC’s discretion. It may nonetheless be worth submitting a claim, especially if the sums are large.
For more information, please get in touch with your usual BKL contact or use our enquiry form.