Has HMRC shut the door on mixed-use SDLT claims or is there still a window of opportunity?

31 August 2023 - Samantha Stent

Stamp Duty Land Tax (SDLT) is the tax payable on the purchase of property or land and is applicable to residential property, commercial property and mixed-use property (i.e. property that includes both a residential and a non-residential element).

The lower SDLT rates applicable to mixed-use properties have led to an increasing number of erroneous SDLT returns and unfounded refund claims being submitted to HMRC. Sam Stent and Jake Egner from Scrutton Bland’s Tax team look at some examples of invalid mixed-use claims and explain the consequences of using unscrupulous ‘no win no fee’ companies.

SDLT rates for residential property can be up to 17%, compared to a top rate of 5% for non-residential property purchases. A mixed-use purchase is chargeable at the lower, non-residential rates and so significant SDLT savings can be made if a house purchase includes a commercial or non-residential element.

However, a number of SDLT reclaim companies have sprung up in recent years which are approaching buyers and encouraging them to make unfounded SDLT refund applications on the basis that their property is mixed use.

HMRC processes SDLT returns and issues repayments automatically; the validity of a refund application is not assessed until later.  This means that many months down the line, HMRC can ask the purchaser to repay an erroneous refund (along with interest) at a time when the company that encouraged them to make the refund claim may have disappeared (along with their ‘success’ fee).  The purchaser could also potentially be liable for a penalty of up to 100% of the SDLT refund, leaving them much worse off than if they had not made a refund claim at all.

HMRC is also warning individuals about cold calls from rogue tax repayment agents advising them to make speculative SDLT refund claims.  Nicole Newbury, HMRC Director for Wealthy and Mid-sized Business, said: “We are seeing obviously spurious refund claims that are never going to succeed; but will lead to an unnecessary bill for the customer.

We are warning new homeowners not to get caught out by tax repayment agents promising easy money on a ‘no win, no fee’ basis. If it sounds too good to be true, it probably is. We want to help people get it right and avoid unnecessary tax bills, so treat promises of easy money with real caution.

Anyone approached about a Stamp Duty refund claim should check with their original conveyancer, take independent professional advice and check HMRC’s guidance.”

The complexity of the SDLT legislation combined with aggressive marketing by unscrupulous agents and increased HMRC scrutiny means that is more important than ever for individuals to seek professional tax advice from reputable and experienced advisers.

How can Scrutton Bland help?

Scrutton Bland has a number of specialist SDLT advisers and we can assist purchasers at any stage of a transaction.  Ideally, clients will contact us before exchange and completion to ensure that any SDLT savings can be optimised.   However, if you have already purchased your property and have been approached with a “too good to be true” offer (or if you simply think you may have paid too much SDLT), we can still review your transaction retrospectively and provide you with an honest appraisal of whether you have paid the correct amount of SDLT.

If we feel you have sufficiently strong grounds for a refund application, we can prepare an amended SDLT return for you (or an Overpayment Relief Claim if it is more than 12 months from the submission date of the original SDLT return).  However, if we think on balance that you have paid the correct amount of SDLT we will tell you – we do not want our clients exposed to potential penalties or costly HMRC enquiries.

Examples of unreasonable mixed-use claims cited by HMRC in their recent consultation document include:

  • A purchaser claiming that because they leased their garage to a company for storage then the purchase of their house, garden and garage was a mixed-property purchase and should be subject to the lower non-residential SDLT rates. Similarly, another purchaser claimed that the occasional use of a room above a detached garage as an office meant that their purchase of a 6-bedroom detached house also qualified as mixed-use.
  • A claim that a paddock behind the back garden of a substantial residential property was non-residential on the basis that a neighbour’s horse sometimes grazed there.
  • A purchaser claiming that a right of way across the grounds of their country house was non-residential land (even though the path was part of the grounds of the home, and nothing separated it from the rest of the grounds).

It seems clear to us (and probably to you!) that these claims lacked merit and unfortunately the purchasers in these cases will now be out of pocket.

By way of contrast, we are currently advising a client who is purchasing a site containing a residential house, 12 stables, various outbuildings and 85 acres of land.  Following a detailed analysis of the transaction, discussions with the conveyancing solicitors and a review of the site plans, estate agent’s particulars and Land Registry entries, we have confirmed that there are specific areas of the property that are either used for genuine commercial purposes or which constitute bare, non-residential land.  As a result, we have been able to advise the client that the entire site can confidently be considered mixed-use and is therefore subject to the non-residential SDLT rates.  This has generated a saving for our client of over £180,000.

Potential changes on the horizon

In order to creating a level playing field when it comes to SDLT, HMRC has proposed the following amendments to SDLT rates for mixed-use property:

  • an apportionment basis, so that SDLT would be payable on the residential part at the residential rates and on the non-residential part at the non-residential rates; or
  • treatment of the property as non-residential only where the consideration attributable to the non-residential part exceeds a certain threshold (eg 50%).

If you would like to discuss land tax issues such as SDLT with a member of our tax team, please get in touch with Sam or Jake by emailing hello@scruttonbland.co.uk or calling 0330 058 6559.  We regularly advise homebuyers, private investors, trustees, property developers, holding companies and not-for-profit organisations and can work directly with you or with land agents and law firms on your behalf.

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