Consultation on changes to SDLT mixed-property purchases and Multiple Dwellings Relief

HMRC announces a consultation on potential changes to the Stamp Duty Land Tax rules for mixed-property purchases and Multiple Dwellings Relief.

HMRC is concerned that purchasers of residential property have been avoiding the higher rates of stamp duty land tax (SDLT) that generally apply to purchases of residential property by:

(a) structuring transactions so that they involve an element of non-residential property and can then enjoy the lower rates of SDLT applicable to “mixed-properties”; or

(b) making improper claims for SDLT Multiple Dwellings Relief (“MDR”) on the basis that certain structures amounted to “residential dwellings” for MDR purposes.

HMRC has announced a consultation on reforms to:

1. the way SDLT is calculated for purchases consisting of residential and non-residential property (i.e.  mixed-property); and
2. MDR.

Mixed Property Purchases

Mixed-property purchases are acquisitions of residential and non-residential property.

These transactions are subject to SDLT at lower non-residential rates. This applies even if the amount of non-residential land being purchased is very small and even allows a purchaser to use the non-residential rates where a purchase consists almost entirely of residential land.

To remedy this perceived inequity, HMRC proposes introducing a new apportionment method for calculating SDLT. Apportionment would mean that:

• the residential portion of a mixed-property purchase is taxed as residential property; and
• the non-residential portion of a purchase is taxed as non-residential property.

Alternatively, HMRC is also seeking views on introducing a new threshold for mixed-property purchases. This would mean that non-residential SDLT rates would only apply if the non-residential element is more than a certain proportion of the consideration (e.g. more than half).

If apportionment is introduced, HMRC expects that the higher rates for additional dwellings and non-resident SDLT surcharges would only apply to the residential element of purchases.

Multiple Dwellings Relief 

MDR was introduced to reduce the rate of SDLT payable on purchases of multiple residential properties so that it is closer to that charged when purchasing those properties separately.

HMRC say that the significant tax saving available has led to an industry of "SDLT reclaim agents" that typically contact purchasers after they have submitted SDLT returns and incorrectly suggest that part of the property purchased is a separate dwelling.

HMRC say their analysis shows that up to 40% of MDR claims may not actually qualify and they have set out four options for consultation:

1. Allow MDR only where all the dwellings are purchased for a "qualifying business use". 

A property acquired for a "qualifying business use" would be one that is acquired for:

• development or redevelopment and resale; or
• exploitation as a source of rents.

2. Allow MDR only in respect of the dwellings purchased for a "qualifying business use".

The rules and conditions for this option would be largely the same as for Option 1, but with the difference that MDR would be available only for those dwellings acquired for a "qualifying business use" and not for dwellings not acquired for such a use.

3. Restrict MDR by introducing a "subsidiary dwelling" rule.

This option would part of a building, or a building within the grounds of another dwelling, would not count as a separate dwelling for the purposes of MDR unless its value is a third or more of the total price attributable to the property as a whole.

4. Allow MDR only for purchases of three or more dwellings.

The Consultation

The consultation was published on 30 November 2021 and runs until 22 February 2022.

It can be accessed here

HMRC is keen to receive views from industry on the extent to which the proposed measures would address its concerns and/or result in unfair treatment or unexpected “collateral damage”. If you wish to make submissions we would be happy to assist you in doing so.