Mixed property purchases: are you due a stamp duty refund?

A surprising change to HMRC manuals has opened up the scope of refunds of Stamp Duty Land Tax (SDLT) already paid on certain mixed property, and an opportunity to obtain a cheaper SDLT charge on incorporations of mixed portfolios, but this may be a brief window of opportunity. 

A mixed property, one containing both a dwelling and a non-residential property, such as a shop with a flat above, or a portfolio of properties including both residential and non-residential property, is charged to SDLT at the non-residential rate, with a maximum rate of 5%. 

If that mixed property portfolio contains more than one dwelling, Multiple Dwellings Relief (MDR) is available which can reduce the charge by effectively unlinking them, gaining more than one bite of the lower tax rates.

But in doing so it brings the dwellings into residential rates, which have a maximum rate of 15% but, more importantly,  a minimum rate of 3%, which is often not a lot less than the non-residential rate - or so we thought. 

If you claim MDR on a residential portfolio, the minimum rate is indeed 3%, but HMRC has recently conceded that the legislation is worded in such a way that the 3% minimum does not apply where the MDR is applied to a mixed portfolio.

In that event, the minimum is 1% and that is almost certainly going to be significantly lower than the non-residential rate.

And with the current reduced SDLT rates on residential property, that minimum rate will apply to most cases where MDR is claimed. 

This is apparently a drafting error, and the result of the change surprised almost all SDLT advisors, so we can expect the error to be fixed in the future, but, meanwhile, anyone buying or incorporating a mixed portfolio can take advantage of the change and reduce their SDLT charge. 

Window of opportunity

If you are considering incorporating your mixed portfolio, but have been put off by the SDLT charge, now is the time to reconsider the matter, before the residential rates go up again on 1 April 2021, before the government change the rules (perhaps in the Budget on 3 March 2021) and before the much-rumoured increases in capital gains tax rates (again, possibly from Budget day).

If you are considering adding a commercial property to your prospective residential property portfolio purchase to take advantage of this, be careful as the guidance says that this will not apply if the non-residential element is insignificant or “artificial”. 

If you have already paid the 3% minimum on a mixed property purchase or incorporation, you may be able to claim a refund.

If you are still within 12 months of completion date, an amendment of the original return may be submitted but if you are past that deadline but within 4 years, then an overpayment claim would be worth considering. 

If this is relevant to you, please contact us to discuss how we can help.