SDLT Classification. Purchasing Mixed-Use Property

(Strategies Using SDLT Reliefs & Classifications)

Mixed-Use Properties and SDLT Rates

Mixed-use properties are those that have both residential and commercial elements, like a building with a shop on the ground floor and flats above. For SDLT purposes, these properties can benefit from being taxed at non-residential rates, which are generally lower than residential rates. This can make mixed-use properties financially attractive to buyers, especially property developers or investors.

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Residential vs. Non-Residential SDLT Rates

Non-residential and mixed-use properties benefit from different SDLT thresholds and rates, which are generally lower compared to residential properties. This can result in a lower overall SDLT liability for these types of properties.

For non-residential or mixed-use properties, the SDLT rates are as follows:

• For a property or lease premium, or transfer value up to £150,000: 0% SDLT rate.
• For the next £100,000 (the portion from £150,001 to £250,000): 2% SDLT rate.
• For any amount above £250,000 (the portion exceeding £250,000): 5% SDLT rate.

In contrast, residential property transactions are subject to the following SDLT rates:

• For a property or lease premium, or transfer value up to £250,000: 0% SDLT rate.
• For the next £675,000 (the portion from £250,001 to £925,000): 5% SDLT rate.
• For the next £575,000 (the portion from £925,001 to £1.5 million): 10% SDLT rate.
• For any amount above £1.5 million (the portion exceeding £1.5 million): 12% SDLT rate.

Typically, a 3% surcharge is added to the standard SDLT rates when acquiring an additional residential property or making a purchase through a limited company, provided the purchase leads to ownership of more than one residential property.

Additionally, non-resident taxpayers generally incur a 2% surcharge on the purchase of residential properties in England or Northern Ireland.

Example:

Let’s say a limited company buys a residential property for £2 million. Because it’s a company buying it, there’s an extra 3% SDLT. Also, one of the main shareholders lives abroad, so there’s another 2% surcharge.

Residential Property Purchase:

• Subtotal: £33,750 + £57,500 + £60,000 = £151,250
• 3% Higher Rate for Companies: 3% of £2 million = £60,000
• 2% Surcharge for Non-Resident Shareholder: 2% of £2 million = £40,000
• Total SDLT: £151,250 + £60,000 + £40,000 = £251,250

So, for a £2 million residential property, the company would pay £251,250 in stamp duty, including the extra charges because it’s a company and one of the shareholders lives outside the UK.

Non-Residential Property Purchase:

If the company bought a non-residential property for the same price (£2 million), the calculation would be different:

• Total SDLT for Non-Residential: £2,000 + £87,500 = £89,500

In this case, buying a non-residential property would only cost £89,500 in stamp duty, which is significantly less than the £251,250 for the residential property. 

This huge difference shows why some investors might prefer buying non-residential or mixed-use properties, especially when purchasing through a company or if one of the owners is not a UK resident.

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When dealing with the acquisition of multiple dwellings or linked transactions, the classification of any single part of the property can have broad implications for how Stamp Duty Land Tax (SDLT) is assessed. Specifically, if within a purchase of five or fewer dwellings, or in a linked transaction involving multiple properties, one of the dwellings is assessed as non-residential due to its condition or usage, this can lead to the entire transaction being classified as mixed-use for SDLT purposes.

• Linked Transactions and Mixed-Use Classification: When properties are bought in a linked transaction—meaning they involve the same buyer and seller, or are part of a single arrangement or a series of transactions—if one property among them is deemed non-residential, the entire set of transactions can be classified as mixed-use.
• Implications for SDLT Rates: Mixed-use properties are subject to non-residential SDLT rates, which are generally lower than residential rates. This means that even if the majority of the properties involved are residential, the presence of a non-residential element shifts the SDLT calculation to potentially more favourable SDLT rates for the buyer.

Thus, when assessing the potential SDLT implications of a property transaction involving multiple dwellings or linked transactions, it’s important to consider the condition and use of each individual dwelling. If any dwelling qualifies as non-residential, the entire transaction likely qualifies as mixed-use, thereby altering the SDLT liability to non-residential rates.

Note: Refer to ‘Non-Residential & Mixed-Use SDLT’ for an in-depth explanation of how properties may be classified as non-residential based on condition and other property characteristics.

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Examples of mixed-use property

(Strategies Using SDLT Reliefs & Classifications>SDLT Classification. Purchasing Mixed-Use Property)

➤ Mixed-use properties combine residential and commercial spaces, such as shops with apartments above, offices with living areas, or farms with residential homes, qualifying them for potentially lower SDLT rates.

Retail and Residential

An example of a mixed-use property is one that includes a retail shop on the ground floor with residential flats or apartments above it. The commercial aspect (retail shop) and the residential component (flats) make this property mixed-use.

Source: Wikipedia

Office Space with Living Accommodation

A building that houses office space and also includes living accommodations, such as a flat for the owner or employees, is another example of a mixed-use property. The presence of both commercial (office space) and residential (living accommodation) areas within the same property qualifies it as mixed-use.

Source: Wikipedia

Farms with Residential Property

Farms often include agricultural land or buildings used for farming activities (non-residential) and a farmhouse or other living accommodations (residential). This combination of agricultural and residential use means that many farms are considered mixed-use properties for SDLT purposes.

Source: Wikipedia

Land with Multiple Uses

A parcel of land that includes both residential areas (such as houses) and non-residential areas (such as commercial forestry, recreational grounds, parking lots, offices, or factories) can be classified as mixed-use. The diverse use of the land contributes to its mixed-use status.

Source: Geograph.org.uk

Commercial Building Conversions

A commercial building that is being converted into residential units, where the conversion is not yet complete, may be considered mixed-use during the transition period. If part of the building remains in commercial use while other parts are being converted or have already been converted into residential spaces, the property is mixed-use.

Source: Wikipedia

Guest Houses and B&Bs

Properties operating as guest houses or bed and breakfasts (B&Bs) that include both guest accommodation (commercial) and private living quarters for the owner (residential) are typically classified as mixed-use. The dual function of hosting guests and serving as a residence contributes to this classification.

Source: Wikipedia

Workshops or Studios with Living Spaces

Buildings that contain a workshop, studio, or other creative spaces, along with living accommodations for the artist, craftsman, or business owner, are considered mixed-use. The commercial activity conducted in the workshop or studio and the residential use of the living spaces define the property as mixed-use.