Is SDLT charged at non-residential rates when a property includes both commercial and residential parts?

Introduction

Buyers often ask how Stamp Duty Land Tax (SDLT) works where a single purchase includes both business and residential elements. This commonly arises where a building contains commercial space on one floor and flats or other dwellings on another, or where garages, storage areas or land are let separately alongside residential accommodation.

The key issue is whether the transaction is treated as residential, non-residential, or mixed-use. That classification matters because it determines which SDLT rate table applies to the whole purchase price.

The Question

A buyer is proposing to acquire an investment property through a company. The property includes office accommodation, several residential studio flats, and detached garages that are separately let. The question is whether SDLT should be calculated using residential rates or non-residential rates.

Nick’s Explanation

Nick’s view was that this type of transaction is properly treated as mixed-use for SDLT purposes. In anonymised form, his explanation was:

“Where a transaction consists of both residential and non-residential property, the whole consideration is charged at the non-residential SDLT rates. A building used or suitable for use as a dwelling is residential property, while property that is not residential is non-residential. If the purchase includes both, it is not a purely residential transaction.”

That is the core point. If part of the property is commercial and part is residential, the transaction normally falls within the mixed-use rules, and the non-residential rate table applies to the entire chargeable consideration.

The Law

The starting point is the Finance Act 2003.

Section 55 of the Finance Act 2003 sets out the SDLT charging rules and rate structure. In broad terms, where a land transaction includes both residential and non-residential property, the transaction is taxed using the non-residential rates rather than the residential rates.

Section 116(1)(a) of the Finance Act 2003 provides that residential property includes a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use.

Section 116(7) of the Finance Act 2003 provides that non-residential property means any property that is not residential property.

In practice, a purchase is mixed-use if the subject matter of the transaction includes at least one residential element and at least one non-residential element. Typical examples include:

• a shop with a flat above;
• offices with residential units in the same title;
• a dwelling acquired together with commercial premises or land used for business purposes;
• buildings or areas let on a commercial basis alongside residential accommodation.

Where the issue is whether a building was unsuitable for use as a dwelling at the effective date of the transaction, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. A property will not cease to be residential merely because it needs repair, modernisation, or improvement. The condition must be serious enough to take it outside the concept of a building used or suitable for use as a dwelling.

Analysis

Step by step, the SDLT position is usually analysed as follows.

1. Identify the subject matter of the transaction.

   Here, the purchase includes office space, residential studio flats, and detached garages that are separately let.

2. Decide which parts are residential.

   The studio flats are plainly residential property if they are used or suitable for use as dwellings.

3. Decide which parts are non-residential.

   The office accommodation is non-residential. Garages may also support a mixed-use analysis where they are separately let or form part of a commercial income-producing arrangement rather than ordinary residential occupation.

4. Ask whether the transaction includes both categories.

   If it does, the transaction is mixed-use. On the facts described, that is the natural conclusion because the acquisition includes both commercial premises and residential dwellings.

5. Apply the correct SDLT rate table.

   Once the transaction is mixed-use, the non-residential SDLT rates apply to the whole chargeable consideration.

The fact that the buyer is using a company does not change the basic mixed-use classification. The company structure may matter for other tax issues, but it does not convert a mixed-use purchase into a residential one.

It is also important not to confuse mixed-use treatment with arguments about a dwelling being uninhabitable. Those are different issues. If a buyer tries to argue that the residential element is not really residential because it was not fit for occupation, the courts now apply a demanding test. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition threshold is relatively high, so ordinary disrepair will usually not be enough.

Outcome

On the facts described, the practical conclusion is that the purchase is likely to be treated as a mixed-use transaction for SDLT purposes. That means the non-residential SDLT rates should apply to the whole purchase price.

Practical Steps

Anyone assessing a similar transaction should:

• review exactly what is being acquired under the contract and title;
• identify which parts are dwellings and which parts are commercial or otherwise non-residential;
• check whether any garages, outbuildings, land or ancillary areas are separately let or used commercially;
• ensure the SDLT return reflects the mixed-use classification if the facts support it;
• give the conveyancer full details of the layout, use, tenancy arrangements and title documents before the SDLT1 is submitted;
• avoid relying on any “not suitable for use” argument unless the evidence clearly meets the higher threshold confirmed in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Conclusion

Where one purchase includes both commercial premises and residential dwellings, SDLT is usually charged as a mixed-use transaction. In that situation, the non-residential rates apply to the whole consideration. A property does not stop being residential merely because it needs work, and after Mudan the bar for showing a dwelling was not suitable for use is relatively high.

Legal References Used

• Finance Act 2003, section 55
• Finance Act 2003, section 55(1B)
• Finance Act 2003, section 116(1)(a)
• Finance Act 2003, section 116(7)
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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