The Times has reported that HMRC has been writing to purchasers of property and informing them that they owe extra SDLT as a result of alleged incorrect calculation of SDLT liability based on the non-residential tax rate as opposed to the residential tax rate. The general rule is that residential SDLT rates will apply if a property is purely residential and non-residential rates will apply if it is commercial or mixed-use.
Our advice is not to take any claim from HMRC at face value, as there is a specific definition for residential property for the purposes of SDLT. The Times provided the example of a purchaser being challenged by HMRC for an extra £106,000 in SDLT after using the non-residential rate to calculate their liability. The property in question included woodland, which HMRC tried to claim formed part of the garden. The purchaser was able to challenge this claim and was found to have correctly calculated their liability on the basis of the non-residential rates.
Clearly each property will be different, but the general position is that if there is a part of the property that is used for commercial purposes separate from the residential aspect of the property, then the mixed-use rates could apply.
If you have received one of these letters from HMRC, it would be wise to at least look into the possibility of challenging it to see whether it could be successfully defended. Even if the input of a professional advisor is required, the short-term expense of asking for advice and assistance could deliver savings of thousands of pounds.
For example, if an individual purchases a property for £500,000 and the non-residential rates apply, SDLT liability would be £14,500. On the other hand, if the residential rates were to apply and the individual already owns a residential property and is not replacing their main residence, the liability would almost double to £30,000. This example shows how significant the distinction can be and why it is so important to ensure that the correct SDLT is paid at the time of the purchase (HMRC will not correct you if too much tax is paid). Any allegation from HMRC that further tax is payable should be defended strongly if there is evidence to the contrary.
These notes are intended for information purposes. They are not a full statement of the law and should not be relied on as specific legal advice. For legal advice on this topic contact Ben Mitchell, Commercial Property Solicitor at Parnalls Solicitors on 01566 772375 or email email@example.com