Kerry Addison, Agriculture and Commercial Property Solicitor at Thompson Smith and Puxon (TSP), discusses the implications on a property of a mixed use classification on Stamp Duty Land Tax.
Both buyers and sellers need to consider the impact of Stamp Duty Land Tax (SDLT) at the early stages of a property transaction. Since SDLT was introduced by the Finance Act 2003 it has become steadily more complex and it is no longer just the buyer’s issue or something to consider after contracts have been exchanged.
Whether a property is residential or mixed use for SDLT can have a big impact on the amount of tax paid. A farmhouse and land being sold for £2.5 million could be liable to SDLT of £213,750 if a residential property and a main home. This could increase to £288,750 if the buyer already owns a residential property as the surcharge on purchasing additional residential properties introduced in April 2016 would apply. If the property is classified as mixed use the tax due would be much less, at £114,750.
HMRC define mixed use as a property that incorporates both residential and non residential elements. Although in some cases it is very obvious that a property is mixed use, for example it includes commercial units let to tenants, some other properties can be less clear and will need careful consideration of the individual circumstances. If land is considered as purely garden and grounds for amenity of the residential dwelling house, then with no other commercial element it will be classified as a residential property. HMRC define garden and grounds to include land that is needed for the reasonable enjoyment of the dwelling, taking into account the nature and size of the dwelling. So some houses sold with 20 acres of land could be residential, others with only a couple of acres of genuinely agricultural land will be mixed use.
If selling part of a property or selling a farm in lots the seller could consider how to legitimately include a non residential element with a farmhouse (particularly a valuable one) as the price achieved might be impacted by the amount of tax a buyer has to pay.
SDLT will not be the only factor when deciding how to structure a sale or define the sale property. Other factors such as the buyer’s finance arrangements or other tax implications will also be very relevant.
A seller would need to discuss the SDLT implication for a buyer with their agent when considering how best to market the property. It is advisable for a buyer to discuss SDLT with their lawyer at the outset of the transaction. For more complicated and borderline cases advice from a specialist accountant or a tax barrister may also be needed.
For more information on the implications of mixed use classification on Stamp Duty Land Tax contact Kerry Addison. Kerry advises on all Commercial Property matters that concern businesses, farmers and landowners. She can be contacted on 01206 217017 or by email at firstname.lastname@example.org