Excerpt from; Stamp Duty Land Tax Guide For Property Investors.

Not Categorised as Mixed Use

(Overview: Process of Reclaiming SDLT>Reclaims for Stamp Duty in Various Situations)

Summary: Purchasing a property with both residential and commercial parts allows for lower SDLT rates under mixed-use classification; if overlooked, buyers can reclaim the overpayment by proving the property’s mixed-use status.

Reason for Reclaim
When purchasing a property with both residential and non-residential components, like a building with a retail space on the ground floor and apartments above, it is considered mixed-use for Stamp Duty Land Tax (SDLT) purposes. 

This classification allows for SDLT to be calculated at non-residential rates, which can significantly reduce the tax liability. Not applying for mixed-use relief can result in an overpayment of SDLT, but buyers have the option to reclaim this overpayment by proving the property’s mixed-use status.

For instance, if a property investor buys a combined residential and commercial property for £1.2 million without applying for mixed-use relief, they may mistakenly pay SDLT at the residential rate plus a 3% surcharge for additional properties. The correct assessment under mixed-use could lead to a lower SDLT due to the application of non-residential rates.

Incorrect Residential Assessment Calculation:

  • On £1.2 million at residential rates with a 3% surcharge: £97,250

Correct Mixed-Use Assessment Calculation:

  • On £1.2 million at non-residential rates: £49,500

Circumstances Leading to Incorrect Assessment.
Incorrect assessments often arise from misunderstandings of what constitutes a mixed-use property or from misinterpreting SDLT rules. Advisors or buyers might overlook the non-residential part of the property or wrongly assume it does not qualify for mixed-use status, sometimes due to the complexities of SDLT regulations or a failure to thoroughly examine the property’s use at the time of purchase.

Argument for Reclaim
To argue for a reclaim, it’s necessary to demonstrate the property’s non-residential use convincingly. This could involve presenting evidence of commercial activity, non-residential lease agreements, or planning permissions indicating mixed use. By clearly showing that the property qualifies as mixed-use under SDLT rules, buyers can make a strong case to HM Revenue and Customs (HMRC) for a reassessment of their SDLT payment and reclaim any overpaid amount.

Timing for Reclaim
Since this involves a misclassification of property rather than an unapplied stamp duty relief, the reclaim period extends up to four years from the transaction’s effective date, rather than the typical 12-month period for standard relief claims. 

Miscalculated SDLT

(Overview: Process of Reclaiming SDLT>Reclaims for Stamp Duty in Various Situations)

Conveyancing Errors

  • Lack of Detailed Knowledge: Conveyancing solicitors, while expert in legal aspects of property transactions, might not always be updated with the latest changes in SDLT regulations, which are frequently amended. This can lead to a lack of awareness about new reliefs and exemptions.
  • Oversight in Application of Reliefs: There are various reliefs and exemptions available that can significantly reduce SDLT liability, such as relief for first-time buyers, Multiple Dwellings Relief, or reliefs applicable to charitable organisations owning property. An oversight in applying these reliefs can result in overpayment.
  • Complex Property Features: Properties with complex features, such as those with multiple dwellings on a single title or mixed-use properties, require detailed analysis to determine the correct SDLT. Misinterpreting how SDLT applies to these features can cause incorrect calculations.
  • Human Error: Simple human error, such as inputting incorrect property prices, misunderstanding the buyer’s circumstances (like whether they own additional properties), or miscalculating the tax due based on the property’s purchase price brackets.

HMRC Calculator Limitations

 The HMRC SDLT (Stamp Duty Land Tax) calculator is a tool intended to help individuals and professionals quickly estimate the amount of stamp duty due on property transactions in the UK. However, several limitations affect its accuracy and comprehensiveness, leading to potential overpayments or underestimations of the tax due. These limitations stem from the calculator’s design as a general tool, its handling of complex scenarios, its inclusion of exemptions and reliefs, and the frequency of updates to SDLT regulations. 

The calculator can be found here: https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/ 

Generic Calculation Tool

  • Limited Scope of Questions: The calculator’s questions are basic, focusing primarily on the property’s sale price, type (residential or commercial), and whether it is freehold or leasehold. These parameters are not sufficient for tailoring to the unique aspects of many property transactions.
  • Assumptions and Simplifications: To maintain usability and simplicity, the calculator makes broad assumptions about the property and buyer’s circumstances, which might not align with the specifics of the transaction. For example, it assumes standard property transactions without any unique legal or financial complications.
  • Lack of Personalisation: The calculator does not account for the buyer’s specific financial situation or history, such as previous property ownership, which could impact exemptions like the Higher Rates on Additional Dwellings.

Non-inclusive of Complex Scenarios

  • Unusual Property Ownership Types: The calculator is not designed to accurately assess SDLT for complex ownership types like fractional ownership, shared ownership, or properties under certain trusts or corporate structures.
  • Complex Lease Terms: For leasehold properties, the calculator often does not consider the full implications of ground rents, lease lengths, or premium payments, which can significantly affect SDLT calculations.
  • Properties with Multiple Uses: Properties that have both residential and commercial elements (mixed-use properties) or multiple dwellings under one title might not be correctly assessed by the calculator due to its inability to simultaneously process multiple tax rates or reliefs.

Exemptions and Reliefs

  • Limited Information Gathering: The calculator might not request or use information necessary to activate certain reliefs, like Mixed Use Relief, which is applicable to properties that combine residential and non-residential elements.
  • Special Features and Adjustments: Adjustments like exemptions for charitable organisations or reliefs for certain types of developers (e.g., those building affordable housing) are typically not incorporated within the general calculator framework.
  • Reactive Application of Reliefs: The calculator does not proactively guide users through potential reliefs; instead, users must already be aware of these reliefs to ensure they are considered, which is not always the case for the average user.

Updated Regulations

  • Delayed Updates: SDLT regulations can change frequently, often in response to economic policies or budget announcements. The calculator may not be updated immediately, leading to discrepancies in calculated amounts versus actual liabilities under current laws.
  • Regulatory Complexity: The complexity and frequency of changes in SDLT laws mean that even when updates are made, they may not fully capture the intricacies of new regulations, leading to further inaccuracies.

Due to these limitations, the HMRC SDLT calculator should be viewed as a preliminary tool rather than a definitive source for SDLT calculations. Occasionally, these limitations can lead to incorrect SDLT assessments, potentially justifying a stamp duty reclaim.

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.