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SDLT mixed use property: Background
Changes to Stamp Duty Land Tax (“SDLT”) for residential property were announced in December 2014. The ‘slab’ system was abolished and a banding system similar to that used for income tax was adopted. A similar system was announced in respect of non-residential and mixed-use property, and came into force on 17 March 2016.
A consequence of this wholescale change to SDLT is that it has become increasingly important to pinpoint transactions involving both commercial land and dwellings, so called mixed use property. The reason? Mixed use property enjoys the same (lower) rates of SDLT as non-residential property. Additionally, the 3% SDLT surcharge introduced in 2016 in respect of purchases of additional residential property do not apply to mixed use property. Obviously the potentially large SDLT saving can be very attractive for a purchaser and may mean that the seller is able to get a better commercial deal.
So, what is SDLT mixed use property?
Mixed used property consists of ‘land which includes land which is not residential’. The question is how far does this extend? It goes without saying that artificially packaging land together to try to achieve an SDLT saving would likely fall foul of the general anti-avoidance rule for SDLT in S75A FA 2003, but what about the idea of linked transactions. What if, for example your client wants to sell a small development comprising of some flats and a couple of retail units? What if they have different titles but they are packaged together as one sale? The legislation seems to suggest that if you dispose of more than one piece of land, one of which is residential but one of which is non-residential, but those transactions are linked transactions for SDLT purposes those properties will be classed as mixed use properties. Clearly this requires some careful thought.
What are the considerations?
When acting for a buyer if you are unsure about whether the mixed use rates apply, it is always helpful to seek evidence of the non-residential use; to consider whether, if multiple properties are being disposed of in a linked transaction, those properties together would constitute mixed use land; and to identify if there are any user restrictions that would prevent commercial use.
It is clear that for true mixed use property there are some potentially large SDLT savings to be made, and careful consideration should be given to this where clients indicate they are planning to sell or buy land which may have a non-residential element to it. Care should be taken, for example, when advising clients to consider selling commercial land separately which could perhaps form part of a mixed use sale, as selling the entire ‘package’ may, in fact be more attractive to buyers.
Of course, the key question is whether the shutters will be slammed shut on this window of opportunity on 8 March 2017?
If you have any queries about SDLT mixed use property or on any other aspect of SDLT or property tax, please do contact us.