Relief from stamp duty land tax (SDLT) is available when buying residential property with land but caution is needed. HMRC is taking a keen interest and challenging claims.
Stamp duty is charged on the purchase of residential and commercial property, with residential property typically attracting a higher tax rate. It means that significant savings can be made if any part of a purchase can be considered 'commercial' property.
It has resulted in enterprising purchasers claiming that parts of their property – typically pony paddocks, public rights of way, outbuildings or a home office – are not in fact residential but commercial property. Aggressive reclaim agents have helped muddy the waters suggesting claims are possible.
HMRC continues to tighten the net on what it considers spurious claims, challenging those claims and seeking payment of all stamp duty due often with additional penalties. Homeowners may find their wider tax affairs under greater scrutiny.
In October last year, the founder of the delicious Gü puddings was landed with a £120,000 bill from HMRC after falling foul of a misguided mix-use claim on their £3m country home.
HMRC guidance is not entirely clear as it does not define the term 'non-residential' which is seen as a catch-all category.
HMRC does define residential property as 'a building that is suitable for use as a dwelling together with land that is or forms part of the garden or grounds of such a building'. If parts of a purchase do not fall into that definition, it is automatically classed as non-residential.
It is easy to see how confusion can arise.
Would the purchasers of a large country home where paddocks and fields are rented to a local farmer to graze livestock be able to claim SDLT at a commercial rate? What about large stables that could be used for livery? And, of course, it should be recognised that many country estates may originally have operated as farms and their use evolved over time.
The Gü puddings decision, examined in the Upper Tier Tax Tribunal, offers some guidance, confirming that any element of perceived non-residential land or building must be commercially exploited to qualify.
Size and use matters
Property with a few acres of paddocks or redundant farm buildings are unlikely to convince HMRC that they qualify for commercial SDLT rates, irrespective of whether attached or separated from the house by hedges or public rights of way, unless they are commercially exploited on a regular basis.
However, where land is used for business purposes, for example, renting to a local farmer, claims may still be successful. To convince HMRC, commercial activity will need to be evidenced before the purchase. The often-informal nature of grazing agreements with local farmers can make this challenging.
Clarification on the tax position of SDLT on mixed property purchases is expected from Government soon. A consultation closed in 2022 and we are currently waiting on the Government's response. As part of the consultation for MDR and mixed-use claim, HMRC is contacting individuals to conduct a research survey.
HMRC is currently contacting individuals who have previously made claims for multiple dwellings relief from stamp duty.
In the meantime, those purchasing homes who believe that purchase may qualify for relief on stamp duty are encouraged to take advice from a specialist and knowledgeable accountant.
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