Although the recent Spring Budget didn't include any Stamp Duty Land Tax (SDLT) announcements, I wanted to take a look at the potential changes on the horizon, following a consultation by HM Revenue & Customs (HMRC) ...
- In September 2022, the nil-rate threshold for SDLT on residential property purchases in England and Northern Ireland was raised from £125,000 to £250,000
- The nil-rate threshold for first-time buyers was increased from £300,000 to £425,000
- Scotland and Wales have devolved powers to set their equivalent tax rates: Land & Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales
- The maximum purchase price for claiming first-time buyers' relief rose from £500,000 to £625,000
- These adjustments are temporary and will be reassessed after 31 March 2025
- In 2022, HMRC conducted a consultation to examine potential changes to legislation governing mixed-use properties. The existing rules dictate that residential properties use residential SDLT rates, while commercial properties apply non-residential rates. Mixed-use properties, however, currently benefit from the non-residential rates, often resulting in a tax advantage for buyers
Considering the frequency of tribunal cases assessing the classification of mixed-use properties, HMRC proposed two options:
- Apportionment method:
Separate the residential and non-residential elements of a property. For example, a shop with a flat above would currently qualify as mixed-use, but under this proposal, the property would be subject to both residential and non-residential rates. This method could lead to errors or uncertainty, as buyers would need to accurately apportion a property, taking into account factors such as communal spaces and exterior facilities.
- Threshold-based approach:
The government would establish a threshold to determine whether a property is classified as commercial/non-residential or residential. The threshold requires careful consideration to avoid unintended consequences.
However, there are some challenges with the consultation proposals because if the threshold is set too high, it may not capture properties like a high-street shop with a flat above. Additionally, if it's set too low, buyers could be tempted to link transactions, purchasing a large residential property alongside a small, unrelated commercial property to take advantage of the mixed-use classification.
Although the industry had hoped for an update in the Spring Budget, HMRC has yet to announce the results of the consultation. It is anticipated that they will implement the findings at a later date!
In summary, there were no SDLT announcements were made in the Spring Budget, but HMRC held a consultation in 2022, considering changes to the treatment of mixed-use properties. Two options were proposed: an apportionment method and a threshold-based approach and now the industry is awaiting HMRC's decision on the consultation outcomes.
It will be very interesting to see what comes out of it.
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