Stamp duty land tax is calculated differently depending on whether a property is residential or non-residential. What many buyers do not realise is that a property with both residential and commercial elements is taxed entirely at the lower non-residential rates. The saving can be significant, and getting the classification right before exchange of contracts is essential.
Book a free call before you exchange. Getting the SDLT treatment right at the outset could save you thousands.
What is a mixed-use property?
A mixed-use property is one that includes both a dwelling and a non-residential element. Common examples include a shop with a flat above it, a farmhouse with agricultural outbuildings and land, a pub with living accommodation, an equestrian property with stables and paddocks used commercially, and a house with a separate commercial unit or workshop on the same plot. The non-residential element does not need to be large, but it must be genuine and actually used commercially.
How the rates compare
Residential SDLT rates run from 0% on the first £125,000 up to 12% above £1.5 million, with a 5% second-property supplement on additional residential properties above £40,000. Non-residential rates are considerably simpler and lower: 0% on the first £150,000, 2% from £150,001 to £250,000 and 5% above £250,000. There is no second-property supplement on non-residential or mixed-use purchases.
A real difference in practice
A buyer purchasing an equestrian property at £1.2 million with commercially used stables and paddocks would pay SDLT of £49,500 at non-residential rates. The same purchase at residential rates would attract SDLT of £63,750, a saving of £14,250. If it is a second property, the residential bill rises by a further 5%, taking the gap considerably higher.
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What HMRC looks for
The commercial element must be genuine and actually used for commercial purposes. HMRC is alert to arrangements where a token commercial element has been added to a primarily residential transaction to engineer the lower rate. Where a transaction is structured to artificially create a mixed-use classification, HMRC will challenge it. Professional advice before exchange of contracts is important for any transaction where the SDLT position is not straightforward.
Multiple dwellings relief
A separate relief applies where more than one dwelling is purchased in a single transaction. This is calculated differently from mixed-use treatment and may produce a more or less favourable result depending on the specific transaction. Professional advice before exchange of contracts is important.
Book a free call before you exchange contracts. Getting the SDLT right at the outset matters.
