The calculation of Stamp Duty Land Tax (SDLT) when buying additional farm property can be extremely complicated and where the purchase includes a residential property a number of issues can arise.
Since April 2016, a person buying a residential property who already owns all or part of another dwelling, is charged an extra 3% in addition to the normal SDLT. There is currently a zero rate on the first £250,000, followed by a rate of 8% on the next £675,000, 12% on the next £575,000 and 15% on that part of the price over £1.5 million. By contrast, for mixed-use or commercial properties, there is a zero rate of £150,000 followed by 2% on the next £100,000 and 5% on anything over £250,000. The additional 3% does not apply if the property is classed as mixed-use.
It is important to note that SDLT only applies to property purchases in England and Northern Ireland. Different taxes apply in Wales (Land Transaction Tax) and Scotland (Land and Buildings Transaction Tax).
What is classed as a mixed-use property?
The question of what is a mixed-use property has been the subject of several tribunal cases recently, with HMRC winning most of them. Unfortunately, there is no clear definition in the legislation. The approach taken by HMRC is that land and buildings purchased with a house are treated as garden or grounds, unless there is commercial exploitation at the time of purchase. What you intend to use the property for after you have bought it is not relevant.
HMRC took this approach in a recent tribunal case, where 16 hectares of land was bought with a house. Of this, 5 hectares was accepted as garden and grounds, 3.5 hectares was woodland, and 7.5 hectares was grazing land away from the house which was rented to a local farmer for what was described as a peppercorn rent. However, the farmer was said to perform other services such as hedge cutting for the property owner as part of his grazing licence. HMRC argued that the absence of a commercial income for the 7.5 hectares meant that the whole purchase price should be subject to the higher rates of SDLT. Fortunately, the tribunal agreed with the purchaser that this was a mixed-use purchase and the lower rate of SDLT applied.
The SDLT cost of buying property has increased significantly in recent years and it is crucial to take specialist advice prior to purchase in order to minimise the charge. If you would like some advice about the potential SDLT you would be required to pay on the purchase of an additional property please get in touch.
The SDLT cost of buying property has increased significantly in recent years and it is crucial to take specialist advice prior to purchase in order to minimise the charge. If you would like some advice about the potential SDLT you would be required to pay on the purchase of an additional property please get in touch.
