In recent years stamp duty land tax (SDLT) has provided fertile ground for tax advisers peddling ‘planning ideas’ to minimise SDLT payments on residential property purchases. With the top rate of SDLT on such purchases now reaching 17% this is not surprising but beware, many of the ideas promoted are aggressive and simply don’t work.
What should I look out for?
The whole process typically starts with an unsolicited letter from an SDLT reclaim specialist suggesting SDLT has been overpaid on a recent property purchase. For a fee, the specialist will engage with HM Revenue & Customs (HMRC) and seek to get back the overpayment. The typical argument employed is that the relevant property either contains multiple dwellings and so should benefit from multiple dwellings relief (MDR) or that the property in question contains both residential and non-residential property and so is ‘mixed’ property. A claim for MDR does not avoid the residential SDLT rates but the way in which it is calculated can significantly reduce the SDLT payable. If a property is ‘mixed’, this does avoid the residential SDLT rates and instead, the non-residential SDLT rates apply which again can give rise to significant savings.
Challenges to claims
Very few of the cases that come before the Courts where MDR or mixed use is proposed are successful and HMRC considers that many such cases abuse the relevant SDLT rules.
In the recent mixed use case of Sexton and another v Revenue & Customs Commissioners [2023], the First-tier Tribunal (FTT) refused to accept that the use of a communal garden acquired with a flat, made the property mixed for SDLT purposes. This is another victory for HMRC in a long line of wins in which they have successfully challenged mixed use cases.
In the case of Ladson Preston Ltd and AKA Developments Greenview Ltd v Revenue and Customs Commissioners [2022], the taxpayer failed to persuade the FTT that a property over which planning permission had been granted for the construction of multiple dwellings could benefit from MDR, on the basis that no works of construction had commenced at the time the property was acquired. Other recent cases have failed because the dwellings did not have sufficient privacy from one another, the kitchen facilities in one of the dwellings were insufficient and because of legal restrictions on the use of the dwellings.
Conclusion
In spite of HMRC successes, it is still possible to claim MDR or mixed use on residential property acquisitions when the facts genuinely support this but, a word of caution, when the reclaim letter hits your doorstep beware of proposals that sound too good to be true.
Please reach out to our team, who will be happy to assist you with all your SDLT queries.
'...when the reclaim letter hits your doorstep beware of proposals that sound too good to be true...'
