With more people looking to escape to the country, we have been seeing more clients who purchase rural properties that sometimes come with surrounding land. What some are unaware of is that the surrounding land could result in a lower stamp duty land tax (SDLT) bill.
Commercial properties generally attract lower rates of SDLT than residential properties of a similar value. However, mixed use transactions (i.e. when a property has both residential and commercial aspects) also attract lower rates of SDLT.
Furthermore, the 3% additional residential property rates do not apply to mixed use properties. This is especially attractive for a taxpayer who is buying a second home. If the property is mixed use then the 3% additional SDLT does not come into consideration because residential rates are not applicable.
Mr MacDonald, who owns a flat in London, buys a Georgian farmhouse and the neighbouring farmland for £1,000,000. He enters a two-year lease with a farmer for his cattle to graze on the land. He and his family move from London to live in the farmhouse as their family home. He keeps the London flat as an investment.
Under residential rates, Mr McDonald would have an SDLT bill of £73,750. By declaring the purchase as mixed use however, his SDLT liability would only be £39,500 (due to lower SDLT rates and no 3% additional surcharge).
Obviously such properties may be few and far between and there are more important factors to consider when buying a home than just saving SDLT. Moreover what constitutes ‘mixed use’ can be contentious and HMRC broadly define mixed use as a property that incorporates both residential and non-residential elements. Needless to say, each case will need careful consideration of the individual facts but this could result in substantial savings. Factors such as a formal lease with a farmer will bolster the case should HMRC ever challenge the mixed use position.
For anybody who thinks that they may have missed a trick here they have the opportunity to reclaim any SDLT within four years of the completion date of the property acquisition. In our experience HMRC are receptive to these claims if they are structured in the right way.
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