HMRC announce consultation into SDLT’s mixed use rate and Multiple Dwellings Relief claims

The government, on 30 November 2021, announced a consultation looking at two areas of SDLT; mixed use and Multiple Dwellings Relief claims. Both of which have been the subject of a number of recent tax tribunal cases, and continue to be an area of significant interest for taxpayers and their advisors, particularly when the savings can be significant.

Where a transaction is deemed to be mixed use because it is not ‘entirely residential’ then the non-residential/ commercial rates of SDLT apply. With a top rate of only 5% for non-residential and up to 17% for residential property, determining whether a property is ‘mixed-use’ or purely residential can make a material difference to the SDLT cost. This can often be tricky where you have a house with large surrounding land and some commercial activity.

Where more than two dwellings are acquired, either in the same transaction or as part of the same commercial deal, then Multiple Dwellings Relief may be available, provided certain qualifying conditions are met and each dwelling can be considered to be a ‘separate’ dwelling.  Where the relief does apply, the SDLT is calculated based on the average dwelling price, and therefore the purchaser benefits more from the lower rates at the lower banding. Resulting in significant SDLT savings.

In respect of mixed use, HMRC are considering a number of options including an apportionment method under which a valuation is made of the two elements, and then SDLT calculated appropriately for residential and non-residential elements, or alternatively, applying a threshold of non-resident element (e.g. over 50%) before the transaction is deemed to be non-resident.

For Multiple Dwellings Relief, the options being considered are:

• the relief is only available where all of the dwellings are being used for a business purpose
• only available on dwellings that are used for a business purpose
• not allow the relief on ‘subsidiary dwellings’ where the value of the second dwelling is less than a third of the total property value.

Most of these proposals would eliminate Multiple Dwellings Relief in the domestic settings and ‘annexes’.

It is clear that HMRC are keen to tighten the legislation and relief in this area. Although they have been successful in several tribunal cases to date, there is concern that at the moment the net is too wide. Therefore, we would expect legislation to be brought forward quickly.

The Consultation is open until 22 February 2022.

For any further queries regarding SDLT or the consultation please contact Caroline Fleet or your usual Crowe advisor.