The government is consulting on making changes to the stamp duty rules on mixed-use and multiple dwelling transactions. The proposed changes, which are significant, are unlikely to be introduced until autumn 2022.
Currently, transactions that are not exclusively in residential property suffer up to 12% less stamp duty. The mixed-use rule applies to the purchase of a single building with commercial use and residential use (eg. retail at ground level and flats above), as well as the purchase of a mixed portfolio of exclusively residential properties and exclusively commercial properties.
It also applies, though, to the purchase of a dwelling with land that is not ‘grounds’ of the dwelling, as well as the purchase of a dwelling with land that is not residential property regardless of its relationship with the dwelling. These last two possibilities have been exploited over recent years.
The government is considering replacing the hard-edged rule with an apportionment rule, such that a portion of the tax that would be due on the total price at the residential rates is added to a portion of the tax that would be due on the total price at the non-residential rates.
It is also consulting on making changes to multiple dwellings relief to prevent the relief being used on annexes. One option is to restrict the availability of the relief to dwellings purchased for a “qualifying business use” (such as trading, development and resale or investment).
Both sets of changes, if implemented, are likely to lead to the demise of a burgeoning reclaim industry, which is the primary target. The challenge is to ensure that the changes do not have unintended consequences.
The government defended its decision not to introduce reliefs for businesses from the higher rates and the increased rates for non-resident transactions because of the flexibilities given by the mixed-use rule. By ensuring that businesses always pay the higher rates and increased rates for non-resident transactions on a mixed-use transaction, this is a U-turn.
The consultation gives an opportunity to minimise the effect of the changes on businesses.
Sean Randall is a partner at tax, accounting and business advisory firm Blick Rothenberg