Specifically they are seeking opinions on changes to:
- the application of the “non-residential rates” of SDLT for mixed use property; and
- Multiple Dwellings Relief (which is available on the purchase of two or more dwellings).
The consultation is open until 22 February 2022 and HMRC may be looking at implementing the changes in the forthcoming March budget.
HMRC argue that because mixed property purchases are subject to SDLT at the lower non-residential rates of SDLT, taxpayers often seek to find ways to argue the non-residential rates should apply. Usually this is when the non-residential element of the transaction is very small (compared to the residential element). HMRC have also criticised “reclaim agents” who take advantage of these rules by submitting questionable claims that the non-residential rates should apply.
As a result, HMRC have proposed a change to the rules from an “all or nothing approach” to an apportionment approach for mixed-use property, where the residential portion of a mixed-use property purchase would be taxed as residential property and the remaining portion of the property would be taxed as non-residential.
HMRC have also commented on the application of Multiple Dwellings Relief (“MDR”). This relief allows a taxpayer, when they are purchasing more than one dwellings, to determine their SDLT liability by the average value of the dwellings purchased, rather than their combined value. Often this results in a significant SDLT saving but HMRC argue that the relief has been abused in recent years, particularly with reclaim agents arguing that conveyancers and solicitors had failed to submit the correct SDLT claim by ignoring the possibility of MDR. HMRC argue that often these claims are entirely unreasonable. As a result, they have proposed that MDR is reformed, and have sought opinions on the following options:
- allowing MDR only when all of the dwellings are purchased for a qualifying business use;
- allowing MDR only in respect of dwellings which are purchased for a qualifying business use;
- restricting MDR by introducing a “subsidiary dwelling rule”; and
- allowing MDR only for purchases of three of more dwellings.
All of these options will restrict the availability of MDR for the taxpayer. Clarification on the non-residential rate of SDLT for mixed use property is welcome as this is often an area of law which is subject to interpretation of HMRC’s guidance. Undoubtably, HMRC are keen to ensure that the use of the non-residential rate of SDLT is reserved for more commercial property purchases and that questionable claims from taxpayers and their lawyers are discouraged.
Advice should be sought at an early stage given the complexities around SDLT reliefs and their different rates and taxpayers should pay close attention to the results of this consultation in the coming months.