Stamp duty land tax: an update

Mixed use relief

Mixed use relief is available if the acquisition of residential property includes non-residential property. SDLT is then payable at the lower commercial rate: the top rate of commercial SDLT is 5%, which compares favourably to a potential top rate for residential property of 17%. Our recent article on the Hyman case described one unsuccessful attempt by a taxpayer to argue that extensive grounds attached to a residential property rendered the property mixed use.

Brandbros v HMRC

• The taxpayer bought a residential property, which included a garage. The taxpayer granted a commercial lease over the garage immediately after i.e. on the same day. The Tribunal held that there was no mixed use at the time the property was acquired.
• The “use” of a property is determined at the time of the relevant transaction and not at the end of the day of the transaction.

Khatoun v HMRC

• The taxpayer received a key to access a communal garden, subject to certain conditions, when he bought a residential property.
• For mixed use relief to apply the acquisition of the right to enter and use the communal garden must have been a “land transaction”, which includes either obtaining an “equitable interest” or a “chargeable interest”, and the garden must not have been residential property.
• The tribunal determined that the rights were neither an “equitable interest” (because the evidence persuaded the judge that the right was contractual and revocable) nor a “chargeable interest” (because there was a licence granting permission for the use of the land). Consequently, no mixed use relief could apply.
• The tribunal went further: even if the acquisition had been a land transaction, because the communal garden subsisted for the benefit of a residential property, the right to use it was residential.

Applying for mixed use relief can lead to you becoming mixed up in a difficult conversation with HMRC without the proper advice.

Multiple dwellings relief

Multiple dwellings relief (MDR) is available where an interest in two or more dwellings is acquired in the same transaction. The consequence of MDR is that the SDLT payable for each dwelling is calculated on the average price of the dwellings (i.e. the total consideration is divided by the number of dwellings). Dwelling has its ordinary English meaning of a place of residence, or habitation.

For example, if two dwellings were purchased where the value of the first is £1m and the second is £100,000, MDR means that the SDLT is calculated as the SDLT payable on two transactions of £550,000 each. This results in paying a lower effective rate of SDLT, because SDLT rates increase as the purchase price increases.

Michael and Anthea Mullane v HMRC

• The taxpayers sought to argue that a converted coach house connected to the main property via a glass conservatory would be a second dwelling for the purposes of MDR; the coach house had a bathroom and living area, a sink, drainer, work top, fridge and cupboards but no cooking facilities other than a microwave.
• MDR applies where the property consists of more than one dwelling, each of which is used or suitable for use as a home separate and independent of the other.
• Various factors are important in determining whether a property consists of more than one dwelling. Use prior to completion can be important, as can the question of whether a separate council tax bill was required.
• Critically in this case, the fact that the kitchen facilities in the coach house were not capable of satisfying building and fire regulations if it were let prevented it from being a dwelling. The judge noted in passing that the statutory purpose behind MDR was to increase the supply of rented accommodation, and so if property could not be rented out without modification it was a strong indication that it was not a “dwelling”.

Mobey and another v HMRC

• The taxpayers purchased a large property that had a separate annexe, which they used for their sons who were not able to live independently. The annex had a high degree of independence (lockable entrance, its own fuse box, electricity meters, water supply and sewage pipers). But it was not assessed separately for council tax and there were no cooking facilities.
• The annexe gave sufficient privacy but the lack of cooking facilities meant that the property did not contain all the facilities to live an independent life, and as a result was not a separate dwelling.

One theme emerging from these two recent cases is that for an MDR claim to succeed the additional dwelling in question must be capable of being used as a separate home independently of the main house. Emphasis in both was put on the need for the additional dwelling to have its own kitchen facilities. Filing a claim for MDR without such facilities is likely to prove a recipe for disaster.