SDLT Higher Rates, Mixed‑Use Claims and Late Payment

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Do you pay higher SDLT if you keep your old home and rent it out?
Introduction
A common SDLT question is whether buying a new home triggers the higher rates for additional dwellings when the buyer still owns their previous home and decides to let it rather than sell it. Another frequent issue is whether part business use, such as an annex used as an office, can turn the purchase into mixed-use property and reduce the SDLT bill.
This article explains how the rules usually apply where a buyer purchases a new home, keeps the former home as a rental, and is also considering whether an annex or business area changes the SDLT position. It also looks at late filing, late payment, and HMRC Time to Pay arrangements.
The Question
A buyer who already owns several investment properties purchases a new home for more than £2 million. The buyer has moved out of their former home but has not sold it. Instead, the former home is being let out. The new property includes an annex with its own entrance and facilities, and the buyer has moved their office into that space.
The buyer wants to know:
- whether the new purchase is subject to the higher rates for additional dwellings;
- whether the property could instead be treated as mixed-use because of the annex and business use;
- what happens if the SDLT return and payment are late; and
- whether HMRC may agree a Time to Pay arrangement.
Nick’s Explanation
Nick’s main view was that, on the facts described, the higher rates position is likely to be correct. In anonymised form, his reasoning was:
“Because the previous home has not been sold, and is instead let out, HMRC will usually treat the new purchase as an additional dwelling unless the buyer is replacing their only or main residence within the statutory rules.”
On mixed-use, his view was also cautious:
“Occasional business use or use of part of a home as an office will not usually make a property mixed-use. HMRC is likely to reject mixed-use treatment unless there is genuinely non-residential property or a separately identifiable commercial element.”
On late filing and payment, he noted that filing should not be delayed simply because the tax cannot yet be paid in full. In broad terms, HMRC generally expects the SDLT return to be filed first, after which a Time to Pay request may be considered. Interest continues to run even if a payment plan is agreed.
He also highlighted a further point: if the former main residence is disposed of within three years of buying the new home, the higher rates position may be reversed or corrected under the replacement of main residence rules. Whether that helps depends on the exact facts and timing.
The Law
SDLT is charged on land transactions under the Finance Act 2003. The key provisions here are:
- section 42 Finance Act 2003 – charge to SDLT;
- section 55 Finance Act 2003 – rates of tax, including residential and non-residential treatment;
- section 76 Finance Act 2003 – SDLT return requirements and time limits;
- section 87 Finance Act 2003 – interest on unpaid SDLT;
- Schedule 4ZA Finance Act 2003 – higher rates for additional dwellings;
- Schedule 10 Finance Act 2003 – penalties for late filing.
Under Schedule 4ZA, the higher rates generally apply if, at the end of the day of completion, the buyer owns another dwelling and is not replacing their only or main residence. The previous main residence must usually be disposed of in order for the replacement exception to apply.
If the buyer purchases a new home before disposing of the old main residence, the higher rates may still apply at first, but a refund may be available if the old main residence is disposed of within the statutory three-year period.
Mixed-use treatment falls under section 55. If a transaction includes both residential and non-residential property, non-residential SDLT rates can apply to the whole purchase. But the non-residential element must be real and substantive. It is not enough that part of a home is used for work in an ordinary domestic way.
Where a buyer argues that a dwelling was not suitable for use as a dwelling at the effective date, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That case makes clear that serious disrepair or inconvenience is not enough unless the condition is such that the property is truly not suitable for use as a dwelling at the relevant time.
Analysis
The first question is whether the new purchase counts as an additional dwelling. In most cases, the answer is yes if the buyer still owns the former home on completion day and has not disposed of it. Letting the old home does not prevent it from being another dwelling. In fact, it usually confirms that the buyer has retained ownership rather than replaced their previous residence.
The fact that the former home was once the buyer’s main residence is relevant, but it does not by itself remove the higher rates. The key point is disposal. If the old main residence is not sold or otherwise disposed of within the statutory framework, the new purchase is generally treated as an additional dwelling.
The second question is whether the annex or business use changes the SDLT analysis. Usually it does not. A home office, consulting room, studio, or annex used by the owner’s own business will often still be treated as part of the residential property, especially if:
- it is within the same title;
- it forms part of the dwelling or its grounds;
- it has no separate planning status;
- it is not separately rated for business rates; or
- it is not let on a genuine commercial basis as a distinct non-residential unit.
If there is a separately identifiable commercial unit, separate title, separate lease, agricultural land, workshop, or another genuinely non-residential element, the position can be different. But on the facts described, mixed-use treatment looks difficult.
The third issue is timing. The return and payment deadlines for SDLT are strict. If the return is filed late, fixed penalties can arise under Schedule 10. If the tax is paid late, interest runs under section 87. In serious cases, further tax-geared penalties may also arise depending on behaviour and the length of delay.
Importantly, not filing the return because the buyer cannot yet pay the tax is usually not the safest course. Filing and payment are linked, but they are separate obligations. Delaying the return can create additional penalties that might otherwise have been avoided.
The fourth issue is whether a later disposal of the former main residence could help. In principle, yes. If the former main residence is disposed of within three years of the purchase of the new home, the replacement rules in Schedule 4ZA may allow the higher rates to be reversed or refunded, depending on how the transaction was originally reported and the exact facts. The disposal must be genuine and must satisfy the statutory conditions.
Finally, if the buyer cannot pay immediately, HMRC may consider a Time to Pay arrangement. This is discretionary. HMRC will normally want full financial information, including income, outgoings, assets, liabilities, and evidence that the proposal is affordable. A payment plan does not normally stop statutory interest from accruing.
Outcome
On the facts described, the practical answer is:
- the new home is likely to be subject to the higher rates for additional dwellings because the former home has been retained and let out rather than sold;
- mixed-use treatment is unlikely to succeed merely because an annex is used as an office or has separate access and facilities;
- late filing and late payment can both increase the overall cost, so delaying the return is risky; and
- if the former main residence is disposed of within three years, there may be scope to revisit the higher rates position under Schedule 4ZA.
Practical Steps
A buyer in this position should usually work through the following steps:
- Confirm the completion date and the statutory filing and payment deadlines under the Finance Act 2003.
- Check whether the former home was genuinely the buyer’s only or main residence before the move.
- Decide whether there is any realistic prospect of disposing of that former main residence within three years.
- Review the title documents, plans, planning status, leases, and rating position of any annex or business area before making any mixed-use claim.
- Do not assume that working from home creates mixed-use treatment. It usually does not.
- Calculate the SDLT on the basis most strongly supported by the facts and evidence.
- File the SDLT return as soon as possible rather than waiting for funds to become available.
- If payment in full is not possible, prepare a Time to Pay proposal with supporting financial evidence such as bank statements, rental income, mortgage commitments, asset details, and cash flow forecasts.
- Keep evidence of all relevant facts, including occupation history, tenancy arrangements, and any later disposal of the former main residence.
- If arguing that the property was not suitable for use as a dwelling, assess that argument carefully against Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, because the threshold is now high.
Conclusion
If a buyer keeps their old home and rents it out, the purchase of a new home will usually attract the higher SDLT rates for additional dwellings unless the old main residence is disposed of within the statutory replacement window. A home office or annex will not usually be enough to make the purchase mixed-use. Where SDLT cannot be paid immediately, filing should still be dealt with promptly and any Time to Pay request should be supported by clear financial evidence.
Legal References Used
- Finance Act 2003, section 42
- Finance Act 2003, section 55
- Finance Act 2003, section 76
- Finance Act 2003, section 87
- Finance Act 2003, Schedule 4ZA
- Finance Act 2003, Schedule 10
- 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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