As you may well be aware, Stamp Duty land tax is charged on our residential properties, but did you know that it is also charged on mixed-use properties? Allow us to explain the benefits of Stamp Duty land tax on mixed-use areas, as well as showcase the potential Stamp Duty land tax reduction for mixed-use properties.
Generally, mixed-use properties are constructed vertically, with one floor dedicated to a commercial area and another floor focusing on a residential space. An example of a mixed-use property includes an office space that also has retail on ground level or a shopping department with living quarters above.
Many factors make living in a mixed-use residence highly desirable, for example, some individuals enjoy utilising the fact that they live in the same quarters as a fitness suite or certain retail spaces.
Stamp Duty Reduction for Mixed-Use Properties - Rates
Rates that apply to SDLT on residences that are utilised for mixed use:
National Insurance: SDLT Rate:
- Up to £150,000 0%
- Portion from £150,001 to £250,000 2%
- Portion above £250,000 5%
For example, if you were to purchase a property at £250,000, 0% would be applied to the first £150,000 and then 2% Stamp Duty land tax would be applied to the next £100,000, which then equates to £2000, which is what would be paid on Stamp Duty.
Identifying a Mixed-Use Property
It’s not always clear when identifying and labelling a property ‘mixed-use’, however, there are certain characteristics and regulations that need to be met to qualify a dwelling as a mixed-use one. Our tax specialists will apply the test on the effective date of the transaction.
Certain attributes can apply such as the physical characteristics, a building may be constructed in a way that tailors more to a retail space rather than a residential area.
A certain distinction can be made when certain rooms of a building, that would normally be a dwelling, are utilised for work purposes. Part of the residence could be separated for residential uses, while the other part could be segregated for a business venture, such as a dentist or doctor’s surgery.
Benefits of Stamp Duty Land Tax Reductions for Mixed-Use Properties
Here are many of the potential benefits of Stamp Duty land tax reduction for mixed-use properties, if you have any questions or wish to speak with one of our experienced tax surveyors, contact us, and we will be happy to help.
Lower rates on certain sections of the property – Due to part of the property being utilised for commercial or retail purposes, this can result in lower value on Stamp Duty land tax as the rates for non-residential properties are significantly lower compared to residential usage.
Potential Tax Savings – This will tie into the benefit mentioned above as you will save money overall as part of the building is considered less for Stamp Duty.
Opportunities for property buyers and investors – mixed-use properties offer the potential for rental income from commercial tenants and also residential tenants, and can provide for a steady income stream.
Calculating SDLT on Mixed-Use Properties
Calculating all the necessary calculations to successfully pay SDLT to HMRC can become complex at times, especially if you do not possess up-to-date tax knowledge and complexities.
Our team of experts will determine and allocate the correct purchasing price, the reason for an allocation is to separate the purchasing price for the residential and commercial areas of the property. The SDLT will need to be calculated and applied to each part of the property. The process of this calculation is usually:
SDLT for residential portion = residential SDLT rate ⨉ purchase price of residential portion.
SDLT for non-residential portion = non-residential SDLT rates ⨉ purchase price of non-residential portion.
Mixed Funds Relief
Mixed funds relief is a type of tax provision that is designed to aid individuals who have different types of incomes, these different types of incomes are otherwise known as ‘clean’ and ‘mixed’ funds. This is particularly relevant in the context of tax residency and also the calculation of tax liability.
Clean funds is a term to describe a source or sources of income that have a clear and traceable source, and are subject to favourable tax treatment in new jurisdictions.
Mixed funds, however, are types of income that have less clarity around them or untraceable sources.
This can cause complexities when calculating tax liability in new jurisdictions. The overall goal of mixed funds relief is to prevent double taxation, as individuals will be able to distinguish between clean and mixed funds. This will then prevent the person’s income or funds from being taxed twice in different jurisdictions.
Now equates to fairer taxation on individuals, as they will not be unfairly penalised by having numerous incomes with different tax regulations.
How Can CapEx Tax Specialists Help?
With years of industry experience under our belt, our experience will be used to assess properties and the eligibility for mixed funds relief, whilst also identifying chances to minimise SDLT liabilities and remaining compliant with the updated laws and regulations.
Our specialists are up-to-date with the recent exemptions and reliefs in terms of SDLT and can apply these if necessary within the claim.
Throughout this process, CapEx will provide full ongoing support, this is to ensure our clients’ satisfactory needs whilst also making sure clients are compliant with SDLT rules and regulations.
If you wish to learn more about us, and why we are considered one of the top tax associates, contact us and learn for yourselves about the dedication we go through for our clients and their tax queries.
SDLT Mixed Use FAQs
Generally, MDR is only available for the residential part of the transaction, and non-residential rates will apply to the non-residential section.
For the residential section of the property, normal residential SDLT rates will apply.
As mentioned above, there are many benefits that Stamp Duty on mixed-use properties has brought to people navigating their way through the property market.
If the non-residential section of the property has a small business integrated within, the business may be eligible for small business rate relief, a business will qualify for this relief if its property rateable value is less than £15,000. This relief can then reduce the amount of SDLT paid on the non-residential sector of the property.