HMRC has this month updated its guidance on the 3% SDLT surcharge (also known as the “Higher Rates for Additional Dwellings” or HRAD) in its SDLT manual. The 3% surcharge applies (very broadly) where a purchaser of one or more dwellings already has an interest in a dwelling anywhere else in the world, and is not replacing their main residence. It also applies 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 then 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), then a relief is available which can reduce the total SDLT bill (multiple dwellings relief, or MDR). But what happens when MDR is claimed on a mixed use purchase?
HMRC’s previous guidance stated that the surcharge rates apply where multiple dwellings are bought together with non-residential property and MDR is claimed by the buyer on the residential elements of the transaction. That view has now changed. In the new guidance, HMRC states that the 3% surcharge only applies to purchases of non-residential or mixed use land 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”, and so there is no “bright line” until this is tested through challenges to HMRC’s treatment of various transactions in the tax tribunal.
HMRC does address this uncertainty in its guidance, saying that if it is unclear as to whether HMRC would regard the non-residential element of a mixed transaction as “negligible” a non-statutory clearance application can be made to HMRC. This will however take additional time, could give rise to additional cost and risks a negative response, all of which may put off prospective purchasers from making such an application.
Taxpayers should consider if they may have overpaid SDLT on mixed use, multiple dwelling transactions in the last 12 months.