On 13 November, HMRC updated its Stamp Duty Land Tax Manual regarding the 3% SDLT surcharge imposed by FA 2003 Sch 4ZA (higher rates for additional dwellings or HRAD). The rules are complex, but very broadly they apply to most purchases of dwellings where the purchaser has an interest in a dwelling anywhere else in the world and is not replacing their main residence or where a company is purchasing one or more dwellings (unless the flat 15% rate applies).
The residential rates of SDLT with HRAD on top are punishing, with a top rate of 15% (set to rise further once the new non-resident surcharge kicks in next April). If a buyer purchases non-residential property or a mix of residential and non-residential property, the 3% surcharge does not apply because the consideration is taxable at the non-residential rates of SDLT. If more than one dwelling is purchased in the same transaction (or as part of linked transactions), multiple dwellings relief (MDR) can be claimed to reduce the total SDLT bill. But what happens when MDR is claimed on a mixed use purchase?
Technically, it appears that the surcharge should not apply, because the main subject matter of the transaction consists of a major interest in a dwelling or dwellings together with other non-residential property and so does not meet the conditions in Sch 4ZA. However, HMRC’s previous guidance stated that the surcharge rates applied where MDR was claimed by the buyer on the residential elements of a transaction even if the transaction as a whole was mixed use. That view has now changed. In the new guidance (at SDLTM09740), HMRC states that the 3% surcharge only applies to mixed-use purchases if:
MDR is claimed in relation to the residential element of the transaction; and
the non-residential element of the transaction is ‘negligible or artificially contrived’.
This is welcome news, but the position is still far from clear. HMRC does not provide an interpretation of the term ‘negligible or artificially contrived’, so there is no ‘bright line’ until this is tested in the tribunal. The guidance invites purchasers to make a non-statutory clearance application in the event of uncertainty. This will, however, take additional time, it could give rise to additional cost, and it risks a negative response, all of which may put off prospective purchasers from making such an application.
Advisers should consider if clients may have overpaid SDLT on mixed use, multiple dwelling transactions in the last 12 months by following the previous guidance.
Helen Coward (helen.coward@crsblaw.com) & Anna Reynolds (anna.reynolds@crsblaw.com), Charles Russell Speechlys
Home >Articles > HMRC’s volte face on the ‘second home’ SDLT surcharge
HMRC’s volte face on the ‘second home’ SDLT surcharge
On 13 November, HMRC updated its Stamp Duty Land Tax Manual regarding the 3% SDLT surcharge imposed by FA 2003 Sch 4ZA (higher rates for additional dwellings or HRAD). The rules are complex, but very broadly they apply to most purchases of dwellings where the purchaser has an interest in a dwelling anywhere else in the world and is not replacing their main residence or where a company is purchasing one or more dwellings (unless the flat 15% rate applies).
The residential rates of SDLT with HRAD on top are punishing, with a top rate of 15% (set to rise further once the new non-resident surcharge kicks in next April). If a buyer purchases non-residential property or a mix of residential and non-residential property, the 3% surcharge does not apply because the consideration is taxable at the non-residential rates of SDLT. If more than one dwelling is purchased in the same transaction (or as part of linked transactions), multiple dwellings relief (MDR) can be claimed to reduce the total SDLT bill. But what happens when MDR is claimed on a mixed use purchase?
Technically, it appears that the surcharge should not apply, because the main subject matter of the transaction consists of a major interest in a dwelling or dwellings together with other non-residential property and so does not meet the conditions in Sch 4ZA. However, HMRC’s previous guidance stated that the surcharge rates applied where MDR was claimed by the buyer on the residential elements of a transaction even if the transaction as a whole was mixed use. That view has now changed. In the new guidance (at SDLTM09740), HMRC states that the 3% surcharge only applies to mixed-use purchases if:
MDR is claimed in relation to the residential element of the transaction; and
the non-residential element of the transaction is ‘negligible or artificially contrived’.
This is welcome news, but the position is still far from clear. HMRC does not provide an interpretation of the term ‘negligible or artificially contrived’, so there is no ‘bright line’ until this is tested in the tribunal. The guidance invites purchasers to make a non-statutory clearance application in the event of uncertainty. This will, however, take additional time, it could give rise to additional cost, and it risks a negative response, all of which may put off prospective purchasers from making such an application.
Advisers should consider if clients may have overpaid SDLT on mixed use, multiple dwelling transactions in the last 12 months by following the previous guidance.
Helen Coward (helen.coward@crsblaw.com) & Anna Reynolds (anna.reynolds@crsblaw.com), Charles Russell Speechlys
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