UK: Do I Really Have To Pay Stamp Duty At 15% On My New Country House?

The top rate of SDLT (Stamp Duty Land Tax, often referred to as Stamp Duty) rose to 12% for residential property in March 2016, with an additional 3% if the purchaser already owns another residential property.

This produces a hefty 15%. If, however, a proper analysis of the facts shows that 'Mixed Use' can be identified, then this rate will reduce to a relatively benign 5% payable on the whole of the property.

In order to claim that SDLT is payable at this reduced rate, some part of the property in question must be 'non-residential'. 'Residential Property' is, in essence, defined as a building that is used (or suitable for use) as a dwelling and its garden, grounds and outbuildings. There is nothing in the legislation imposing any other requirements for property to be non-residential, such as commercial use – although clearly this has evidential value. Any claim to pay tax at the mixed use rate relies on the factual position and situation of the property on the day of completion.

Examples of non-residential property may include commercial property (such as shops or offices), agricultural land, forests, or land that is subject to commercial or agricultural occupancies. Everything depends upon careful analysis of the facts on the ground in the light of the precise definition of 'residential property'.

If you believe that you are entitled to pay SDLT at the mixed use rate, it may be worth making a voluntary disclosure to HMRC setting out the justification of the claim. This means that HMRC cannot apply higher financial penalties even if they subsequently argue that the higher rate applies.

Another angle that may help reduce the impact of the SDLT bill is to check whether Multiple Dwellings Relief for SDLT applies – where the property comprises of a main house and, say, further additional cottages. This relief allows a buyer to apply SDLT to the mean value of the dwellings they have purchased, as opposed to paying the SDLT on the actual cumulative value of each dwelling.

Often, when buying a country estate, both mixed-use and multiple dwellings relief are in principle available. As only one rate can be applied, careful calculations and analysis will be needed to identify the lower of the two potential tax exposures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.