My client is a company and the directors of the company are contemplating buying a property for £1M from the same vendor which consists of a dwelling and garden, stables, sheds and 10 acres of agricultural land. Should the acquisition be treated as “mixed use” and the tax chargeable in respect of the transaction be determined in accordance with non-residential or mixed used rates of SDLT?
There has been recent coverage in the tax press concerning what is “residential property” for SDLT purposes. In addition, HMRC have updated their guidance to publish their own views on residential property (see SDLTM00210 and specifically SDLTM00360 to SDLTM00480).There has also been a recent First Tier Tribunal case determining that a residence with substantial grounds was wholly residential property (Hyman v HMRC UKFTT 469). This definition is important as it affects the rates of SDLT payable under s55 FA 2003 i.e. the higher residential rates or the lower “non-residential or mixed” rates. In addition, if residential property is being acquired, the additional 3% rate may apply under Schedule 4ZA FA 2003.
However, when a company acquires an interest in land which includes a residential property, it is often forgotten that there is a separate rule in Schedule 4A FA 2003 which may result in a flat rate 15% SDLT charge. This is sometimes referred to as “ATED related SDLT” as a company which is within the scope of Sch. 4A will inevitably have to register for ATED purposes. Under this rule, even if the acquisition is “mixed use”, a just and reasonable apportionment is required to identify the residential property interest being acquired. If the residential property interest (the “higher threshold interest”) is £500,000 or more the 15% SDLT rate will apply unless one of the exclusions in paragraph 5 Sch. 4A apply (businesses of letting, trading in or redeveloping properties) which follow the ATED charge exclusions. HMRC’s guidance is at SDLTM09500.
Therefore, whether the property interest being acquired is “residential property” or “mixed use property” does not in itself determine the amount of the SDLT payable. Firstly a review of the interest being acquired by your client company is required to decide whether or not the entirety is wholly residential property or mixed use property. Unfortunately this cannot be established from the limited information provided. Secondly consideration needs to be given to whether the Sch. 4A charge applies.
Relief from the Sch. 4A charge is given by a claim on the SDLT Return which is generally prepared by the solicitor dealing with the property acquisition. Therefore you will have to liaise with the solicitor before the SDLT Return is filed if you want to be involved with the decision making process.