As many of those in the property sector will be aware, different rates of Stamp Duty Land Tax (SDLT) apply to the purchase of commercial and residential properties.
This has made the acquisition of mixed property developments challenging, as it complicates the SDLT position for a buyer.
Historically the default tax position on a mixed development purchase has been for HM Revenue & Customs (HMRC) to charge SDLT at the non-residential rate – treating the entire development as a commercial purchase.
Recognising the difficulties that investors face and the disparity in the system, HMRC has announced a change to the way it records SDLT for mixed purchases, which may favour some transactions.
Under the new rules, if there are at least two ‘dwellings’ involved, the property purchaser can elect to pay SDLT on the non-residential part at non-residential rates and the residential part at residential rates.
What’s more, previously the residential rates are subject, in most cases, to the three per cent additional property surcharge.
However, HMRC has now confirmed that the surcharge does not apply in these circumstances, where the mixed development contains at least two dwellings.
The impact of this change is that an election will save SDLT in many more cases. In fact, in some instances, an SDLT rate as low as one per cent could apply to the residential element of a transaction.
To prevent abuse of this amendment, HMRC has included a rule that where the non-residential element of the transaction is negligible or artificially contrived the surcharge still applies.
Investors that are buying a mixed development that includes residential and commercial property in a single transaction or connected transactions should complete their SDLT return with this change in mind.
You may also be able to file an amended SDLT return and claim a refund of some of the SDLT if you have previously purchased residential and commercial property in a single transaction or linked transactions. The time limit to complete an amended return is 12 months after the SDLT return filing date, which is 14 days after the effective date of the transaction.
Transactions that are older than this may still be eligible as you can make a claim up to four years after the effective date of the transaction, although the outcome of such a claim is usually at HMRC’s discretion.
If you need assistance with completing an SDLT return in light of these changes or have a question about what this rule change may mean for future property transactions, please speak to our team today.