Abolition of Multiple Dwellings Relief
Stamp Duty Land Tax (SDLT) is a compulsory tax you pay in England and Northern Ireland if you buy property that is over a certain value. Different SDLT thresholds apply dependent on the use of the property acquired. For example, residential use (a house); non-residential use (such as office space or a commercial unit) or a mixed-use property (such as a commercial shop with residential flats on the upper floors).
There are a number of SDLT reliefs and exemptions that may be available that would reduce the amount of SDLT payable.
Multiple Dwelling Relief (MDR) was a relief available to purchasers of residential property that reduced the amount of SDLT payable when purchasing two or more dwellings in a single or linked transaction.
The Government announced that the abolition of MDR will take effect from 1st June 2024, and that any transactions occurring after 1st June 2024 will not be eligible for MDR (save in limited circumstances).
The importance of correctly assessing if a property is residential, non-residential or mixed use.
In a recent case, Bonsu & Anor v HMRC (2024), Mr and Mrs Bonsu acquired a residential lease of a flat with a right to use a communal garden.
The original SDLT return filed stated the use of the property as residential and the amount of SDLT paid was £50,000.00.
Mr and Mrs Bonsu were subsequently persuaded to submit an amended SDLT return claiming that the purchase included non-residential property in the form of the garden area which resulted in a reduced SDLT liability of £27,000.00 as opposed to £50,000.00, as originally paid.
HMRC investigated their subsequent claim and found that the garden formed part of the residence and issued a notice stating that the correct SDLT payment was £50,000.00 on the basis that the rates applicable to residential property were to be used, not mixed use, so no refund was to be issued. It should be noted that the reverse could be found with regard to Capital Gains Tax. For example, if you were to sell your garden separately from your house, it may not be deemed to form part of your residence, and as such may be subject to Capital Gains Tax.
A similar situation arose in Withers v HMRC (2022). Mr Withers submitted an SDLT return for a property he purchased claiming MDR and stating it was a ‘mixed use’ property as it included a dwelling house, an independent annex and approximately 39 acres of gardens, fields and woodland. 20 acres of the farmland were let under a long-standing grazing licence to a third party.
HMRC did not agree that the property was ‘mixed use’ and increased the SDLT payment from £114,500.00 to £212,500.00, contesting that the property was wholly residential. HMRC did accept however, that the purchase qualified for MDR due to the independent annex on the Property constituting as another dwelling. Mr Withers appealed HMRC’s decision.
HMRC argued that the land let to under the grazing licence forms part of the garden and grounds. The Tribunal found that grazing land did not meet the criteria for residential property and so Mr Withers appeal was allowed.
These cases highlight the importance of correctly assessing the use of the property and as SDLT rules are complex, is important that you ensure the information provided to HMRC is correct and that proper advice is obtained before claiming any relief.
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