Proposed Changes To Stamp Duty Land Tax Rules In England

Roger Harding and Rachel Bennion 22 March 2022

Proposed Changes To Stamp Duty Land Tax Rules In England

HMRC is consulting on potential changes to the Stamp Duty Land Tax (SDLT) rules for mixed use property purchases and Multiple Dwellings Relief.

Roger Harding, tax director and Rachel Bennion, associate at Ince, the law firm and professional services group, examine potential changes to tax rules affecting land in the UK. With governments trying to raise revenues in straightened times – while also reviving economic growth post-Covid – there is a lot of focus on tax changes in the country. 

The editors are pleased to share these views and apply the usual disclaimers about the views of outside contributors. Email

HMRC is consulting on potential changes to the Stamp Duty Land Tax (SDLT) rules for mixed use property purchases and Multiple Dwellings Relief. If introduced, these changes will have important tax consequences for future property purchases.

Mixed-use property

Mixed-use property includes both residential and non-residential elements. Mixed-use property can range from a country house with some land let for grazing, to large scale developments which include ground floor retail outlets with flats above. Such purchases are currently subject to a lower, non-residential rate of SDLT, even where the amount of non-residential land being purchased is comparatively small. HMRC is of the opinion that the current mixed-use property SDLT rules can lead to outcomes which unfairly benefit the taxpayer.

SDLT was introduced at a time when the tax charges on residential and non-residential property were broadly similar, so there was not a significant advantage to be gained by taxing mixed-use property at the non-residential rates. HMRC believes that as rates have changed over time taxpayers have had greater incentive to present residential property as non-residential property in order to take advantage of the significantly lower tax rates applicable to non-residential property purchases.

Under the rules a purchaser pays the non-residential rates of SDLT even where a purchase consists almost entirely of residential property so long as part of the property is commercial.

The current situation is as follows:

•    Purchases of mixed-use property are charged wholly to the non-residential rates of SDLT (which are lower than residential rates);
•    There is no lower limit on the proportion of non-residential property required in a purchase in order to take advantage of this treatment; and
•    There are no rules requiring that the residential and non-residential property be located close to each other.

HMRC are considering the following changes:

•    Introducing an apportionment method for calculating SDLT. This would mean that the residential portion of a mixed-use property purchase would be taxed as residential property and the remaining, non-residential portion of a purchase would be taxed as non-residential property; or
•    Introducing a threshold whereby a purchase is only treated as mixed-use property if the non-residential element is more than a certain proportion. The proportion HMRC are proposing is 50 per cent.

Whilst these proposed changes are not necessarily surprising, given that this is an area in which HMRC has undertaken significant litigation over the past few years, they could have important consequences for clients, especially those who own farmhouses or country mansions which have a small amount of arable land and owners of properties with larger grounds with woodlands not “used or enjoyed” with the residential dwelling.

Potential consequences
The 50 per cent test for residential property will be complicated as the extent of the residential property may be difficult to ascertain. Residential property extends to a house and its grounds. The amount of the land which is considered the garden or grounds of a given dwelling will depend on the nature of that dwelling and the use, size, layout and proximity of that land. As there are a number of variables it may be difficult to identify where the residential property stops and the non-residential starts.

The financial impact of the proposed changes could be significant. The SDLT due on a property purchased for £10 million ($13.7 million), which qualifies for the non-residential rate of SDLT, would be approximately £489,500.00. If the property was instead charged wholly to the residential rate of SDLT then in the below situations the SDLT due would be as follows:

•    The property will be the purchaser’s main residence – £1,113,750.00
•    The purchaser is non-UK resident - £1,313,750.00
•    The property will be the purchaser’s second home – £1,413,750.00

The proposed changes are still just that; proposed, however clients may wish to take advice on the timing of any planned property purchases. We are able to assist any clients who wish to discuss future purchases or the impact that these changes, if introduced, could have on their business.

Multiple Dwellings Relief (MDR)

Using MDR allows purchasers who have purchased more than one property in a single transaction to elect to have the rate of SDLT determined by the average value of the dwellings purchased, rather than their combined value. This allows purchasers to claim the nil and lower rate bandings for each dwelling rather than only once and hence reduces the overall SDLT liability.

HMRC claim that abuse of the rules has led to an industry of “SDLT reclaim agents” and unreasonable claims being submitted, for example claims that en-suites, utility rooms and swimming pools are separate dwellings. As a result of this perceived abuse HMRC is proposing the following four options:

•    Allowing MDR only where all the dwellings are purchased for a “qualifying business use.” A qualifying business use would be where the property is acquired for development, redevelopment and resale or renting;
•    Allowing MDR only in respect of the dwelling purchased for a “qualifying business use";
•    Restricting MDR by introducing a “subsidiary dwelling” rule (this means that part of a building or a building within the grounds of a dwelling would only count as a separate dwelling for the purposes of MDR where its value is a third or more of the price attributable to the property as a whole); or
•    Allowing MDR only for purchases of three or more dwellings.

Potential consequences
The changes to MDR are likely to have the highest impact on private purchasers. However businesses could also be affected.

The example below demonstrates the financial impact MDR can have.

•    An individual buys a property for £950,000 which has an annex within the building. The house is to be used as the individual’s main residence. Under the current rules, the £950,000 is divided by two (the number of dwellings purchased), giving an average price per dwelling of £475,000.The SDLT payable on £475,000 is £13,750. This figure is multiplied by two, giving a total amount of SDLT payable of £27,500.

•    Without MDR, the SDLT for the transaction would have been £38,750. MDR reduces the SDLT payable by £11,250.

If you are considering purchasing property which may qualify for MDR then it is recommended that you seek advice on any impact these proposed changes could have on your tax liability and options to mitigate such effects if necessary.

Responsibility for property transaction taxes equivalent to SDLT in Scotland and Wales are devolved and so these proposed changes would not apply in either country. However the Welsh Government is currently consulting on a proposal to introduce increased higher rates of land transaction tax (LTT), which is the Welsh equivalent of SDLT in areas where the prevalence of second homes and short-term holiday lettings is having a negative effect on the supply of affordable housing.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes