SDLT - multiple dwelling relief on smallholding purchase

Strummer22

Hi,

I'm in the process of purchasing a smallholding with a farmhouse, separate apartment, equestrian facilities (stables and arena) and about 6 acres of grazing land. The sellers have run an equestrian business there within the last few years, but do not currently use the land or facilities commercially. I intend to run a livery yard, so will be using it commercially.

It seems to me that the transaction should fall under 'mixed use' and commercial SDLT rates apply. I understand from reading around that HMRC has, in recent years, taken to trying to argue that such transactions are residential, as that would usually get them more money (not the case on this transaction during the stamp duty holiday, so who knows what they'd say). That's rather beside the point of this post though, which is to understand whether multiple dwelling relief (MDR) can be applied for regardless of whether the transaction is classed as residential or mixed-use? The apartment, to my mind, meets all the criteria for being a separate dwelling: you have to go outside to get there from the farmhouse, has its own locking front door, bathroom, and kitchen. I found this page: https://www.dnsassociates.co.uk/blog/sdlt-change-for-mixed-use-buildings, which seems to confirm that MDR can be claimed on a mixed-use transaction, and would be calculated as follows:

1) calculate SDLT due on commercial rate on whole purchase;

2) calculate the value of the 'residential' part. Divide by 2, as there are 2 dwellings;

3) calculate residential SDLT due on each dwelling, including £125k zero rate (£250k if we complete by the end of Sept);

4) calculate commercial rate due on the commercial part (say £40,000 was calculated under step 1 above and the value of the commercial part is 1/4 of the total, the amount due on the commercial part would be £10,000).

5) Add the amount from steps 3) and 4) - that's the total SDLT due.

Does anyone know if I've understood this correctly? My solicitor says they can't advise on substantive tax issues and we may need separate tax advice if the SDLT position is not clear.

SDLT_Geek

Stu_N_ said:

Hi,

I'm in the process of purchasing a smallholding with a farmhouse, separate apartment, equestrian facilities (stables and arena) and about 6 acres of grazing land. The sellers have run an equestrian business there within the last few years, but do not currently use the land or facilities commercially. I intend to run a livery yard, so will be using it commercially.

It seems to me that the transaction should fall under 'mixed use' and commercial SDLT rates apply. I understand from reading around that HMRC has, in recent years, taken to trying to argue that such transactions are residential, as that would usually get them more money (not the case on this transaction during the stamp duty holiday, so who knows what they'd say). That's rather beside the point of this post though, which is to understand whether multiple dwelling relief (MDR) can be applied for regardless of whether the transaction is classed as residential or mixed-use? The apartment, to my mind, meets all the criteria for being a separate dwelling: you have to go outside to get there from the farmhouse, has its own locking front door, bathroom, and kitchen. I found this page: https://www.dnsassociates.co.uk/blog/sdlt-change-for-mixed-use-buildings, which seems to confirm that MDR can be claimed on a mixed-use transaction, and would be calculated as follows:

1) calculate SDLT due on commercial rate on whole purchase;

2) calculate the value of the 'residential' part. Divide by 2, as there are 2 dwellings;

3) calculate residential SDLT due on each dwelling, including £125k zero rate (£250k if we complete by the end of Sept);

4) calculate commercial rate due on the commercial part (say £40,000 was calculated under step 1 above and the value of the commercial part is 1/4 of the total, the amount due on the commercial part would be £10,000).

5) Add the amount from steps 3) and 4) - that's the total SDLT due.

Does anyone know if I've understood this correctly? My solicitor says they can't advise on substantive tax issues and we may need separate tax advice if the SDLT position is not clear.

Yes, your understanding is correct.  You might want to look at the Upper Tribunal case in Hyman and the First Tier Tribunal in Brandbros for some judicial comment on issues as to whether the property counts as mixed use.  If the sellers ceased the commercial use of the equestrian facilities some years ago, then it seems less likely that it is mixed use.  Your intentions to use the equestrian facilities commercially is not relevant; it is the nature of the property on the "effective date" of the transaction which is relevant.
  
If it is entirely residential then you need to consider whether the extra 3% for additional properties applies, the analysis is more complex where one is buying two dwellings.

Strummer22

SDLT_Geek said:

  If it is entirely residential then you need to consider whether the extra 3% for additional properties applies, the analysis is more complex where one is buying two dwellings.

Thanks, my wife and I are buying with my mum and her mum (my mum will live in an annex in the house, not a separate dwelling) and my mother in law will live in the apartment. We are all selling our main (and only) dwellings to live in the new property. How would the 3% surcharge for additional properties be treated?

SDLT_Geek

Stu_N_ said:

SDLT_Geek said:

  If it is entirely residential then you need to consider whether the extra 3% for additional properties applies, the analysis is more complex where one is buying two dwellings.

Thanks, my wife and I are buying with my mum and her mum (my mum will live in an annex in the house, not a separate dwelling) and my mother in law will live in the apartment. We are all selling our main (and only) dwellings to live in the new property. How would the 3% surcharge for additional properties be treated?

Assuming (as seems likely) that the property counts as entirely residential, then you need to look at it as if each of:

• you
• your wife
• your mum
• your mother in law

were buying the whole property.  Also any other spouses might be relevant.

If for any one of these people the 3% extra would be due, then it would be due on the whole price.

There might be a fair bit to think about here, but a good start would be to know whether your mum or mother in law have any other properties anywhere in the world which might "count against" them.

You would also need to look up the rules about "subsidiary dwellings".  For a start, is the main house (without the apartment) worth 2/3 or more of the total and is the apartment "in the grounds" of the main house?

There can be complicated issues here, so you are likely to need to take specialist advice once you have taken it as far as you can.

Strummer22

Many thanks for the advice.

No, none of us own an interest in any other property.

My mother is widowed. My mother in law is separated, but still lives in the house owned as joint tenants with her husband. This is her only residence and will be sold in order to purchase the new property (i.e., is in the chain). Her husband is renting and will buy a new home by himself some time after their joint house is sold. I can't see that meaning that the higher rate is payable for any of us.

We've not had each individual element valued yet but I can't see the apartment being worth anywhere near 1/3 of the total value. Probably closer to 15-20%.

SDLT_Geek

Stu_N_ said:

Many thanks for the advice.

No, none of us own an interest in any other property.

My mother is widowed. My mother in law is separated, but still lives in the house owned as joint tenants with her husband. This is her only residence and will be sold in order to purchase the new property (i.e., is in the chain). Her husband is renting and will buy a new home by himself some time after their joint house is sold. I can't see that meaning that the higher rate is payable for any of us.

We've not had each individual element valued yet but I can't see the apartment being worth anywhere near 1/3 of the total value. Probably closer to 15-20%.

This sounds hopeful.  The circumstances of your mother in law's husband should not be relevant if at the time she buys they are "separated in circumstances likely to be permanent".

You will be owning the whole property in declared shares, rather than dividing ownership of different parts between you?

Strummer22

Yes we will own the whole property as tenants in common with defined shares according to how much each party contributes to the purchase.

SDLT_Geek

That should be alright for SDLT.