Behind door number three we have...
30 June 2023
There are three types of property you can acquire in England for SDLT purposes – residential, non-residential and mixed use. Mixed used properties are properties that consist of both residential and non-residential elements. An example of this is a building consisting of a shop and a flat.
SDLT and mixed use properties
One of the key benefits of buying a mixed use property (rather than just a residential one) is that mixed use properties are subject to the same SDLT rates as the rates used for non-residential properties (i.e. for office blocks).
The current SDLT rates for non-residential/mixed use properties are:
| Relevant consideration | SDLT rate |
| Less than £150,000 | 0% |
| Between £150,000 and £250,000 | 2% |
| £250,001 plus | 5% |
Meanwhile, the current SDLT rates for residential properties are (based on the buyer being a UK individual and ignoring (i) whether or not they are first time buyers; and (ii) any additional SDLT rates and surcharges that might apply depending on the type and circumstances of the buyer involved):
| Relevant consideration | SDLT rate |
| Less than £250,000 | 0% |
| Between £250,001 and £925,000 | 5% |
| Between £925,001 and £1,550,001 | 10% |
| £1,550,001 plus | 12% |
For properties with a price above £965,000 there can be an SDLT saving for buyers if they acquire a mixed use property as opposed to a purely residential one. By way of example, if a UK resident individual pays £1,000,000 for a freehold property, they will currently need to pay SDLT of £39,500 for that purchase if it is mixed use, but £41,250 if the property is purely residential.
Could this all be changing?
Unsurprisingly, given the potential SDLT benefits of categorising a property as mixed use, there have been instances of taxpayers pushing the limits of what can reasonably be considered to be a mixed use property. There is no legal requirement for a certain percentage of non-residential use, which leaves the rules open to avoidance and abuse.
Due to this, HMRC published a consultation in November 2021 in which they noted that they are looking at ways to change the mixed use property rules to make them fairer, including potentially introducing:
- A new apportionment method for calculating SDLT on mixed use properties (with any apportionment being undertaken on a just and reasonable basis) whereby the consideration payable will be apportioned between the residential element and the non-residential element with residential and non-residential SDLT rates being applied accordingly.
- A system whereby a property can only be a mixed use property if more than a certain proportion (HMRC suggested 50% or more) of the consideration payable for it can be attributed to the non-residential element.
Both options run the risk of increasing the cost and complexity involved in calculating the correct amount of SDLT payable on the purchase of a mixed use property. They are also likely to increase purchase time frames as buyers try to reach a reasonable valuation for the residential and non-residential elements of a property – which will be even more important if a threshold test is introduced.The positive of both options however is that they arguably lead to a fairer outcome. The first possibility (in particular) reduces the ‘cliff edge’ effect whereby a small change in analysis or apportionment has a distorted impact on SDLT.
Since the closing of the November consultation, HMRC has been quiet on reforming the mixed use property rules. The most recent Spring Budget passed without announcement. But it would be a little surprising if they abandoned plans for reform at this stage. For now therefore we will need to ‘watch this space’.