Recent changes in Stamp Duty Land Tax (SDLT) rates may have caused confusion as to what rates apply in certain circumstances, not least when purchasing farms and estates.
Three types of rates are applied to freehold property purchases:
• Residential rates apply to dwellings (unless 6 or more dwellings are purchased together in which case commercial rates apply). Relief is available for two or more dwellings by which tax is calculated on the average price and applied to each dwelling.
• Commercial rates apply to non-residential property; and
• Since 1 April 2016 a surcharge of 3% on top of residential SDLT applies to second homes or homes intended to be let.
Land and buildings that include both residential and non-residential property can sometimes be classed as mixed use which means that commercial SDLT rates apply. Commercial rates on higher value properties are still lower than those applied to similarly priced residential properties. Often significant savings can be made by claiming mixed use.
Arguably the ability to claim a property is mixed use has become even more important since the 3% surcharge was introduced. For instance where a replacement main residence is purchased with a second house, the surcharge is applied to the whole transaction. So a farmhouse purchased with separate cottages could be subject to the 3% surcharge unless you can prove that the property includes non-residential elements, such as farmland or commercially let units. However there can be uncertainty about what qualifies as mixed use.
Residential SDLT is applied to dwellings, and their gardens and grounds, unless such land is considered to be outside the ’curtilage‘ or amenity of the dwelling. So if additional land such as paddocks, or fields treated as pasture or farmland, are purchased with a farmhouse or estate house, mixed use SDLT may apply. An estate consisting of a manor house with parkland might not qualify for mixed use rates, if HMRC consider the parkland to be for the amenity of the house.
HMRC will consider purchases on a case-by-case basis and it will be down to the buyer to prove that the property is mixed use, for example by proving the land is being farmed, or supplying copies of agricultural or commercial agreements.
It would be wise to seek tax advice in such circumstances.
This article was first published in South East Farmer magazine in May 2016.