Mixed-use and MDR reforms

A consultation published on 30 November 2021 primarily aims at preventing abuse of existing SDLT rules. Those rules relating to mixed-use property acquisitions and the applicability of Multiple Dwellings Relief (“MDR”).

Mixed-use proposal

Currently, purchases of mixed-use property are charge wholly to the non-residential rates for SDLT, which are lower than residential rates.

HMRC has proposed an apportionment method for mixed-use property purchases. This is so that the residential elements of the purchase are subject to the residential rates of SDLT. Then, the non-residential rates of SDLT apply to the commercial elements of the purchase.

An alternate proposal that the non-residential element of a purchase must exceed a set threshold. This is before the non-residential rates of SDLT apply. The threshold may well be high as HMRC suggest. As much as 50%+of the consideration may be attributable to the non-residential element. Could a lower threshold in line with the one third rule for MDR be more suitable? We are yet have an outcome on the consultation.

MDR proposal

Currently, MDR reduces the total SDLT liability by applying the SDLT rates to the average consideration of a purchase. It goes onto multiply this by the number of dwellings they acquire. You require a minimum of two dwellings in order to obtain relief.

Propositions relating to the amendment of existing MDR rules as part of HMRC’s consultation would provide various options, for example:

• allowing MDR for purchases which include three or more dwellings only, rather than only two or more dwellings
• allowing MDR only where all dwellings are acquired for a ‘qualifying business use’
• restricting MDR by introducing a subsidiary dwelling rule – the current rules means that the 3% surcharge is not payable on a subsidiary dwelling which is valued at less than a third of the total property price

Our thoughts on mixed-use

Although HMRC have published the consultation on mixed-use and MDR reforms and highlighted potential proposals, the consultation itself does not provide any information to support whether or not MDR is actually achieving its policy aim.

When they introduce MDR in 2011 to encourage investment in residential property and specifically to ‘promote the supply of private rented housing’. The consultation aims at preventing abuse of existing rules however it would be useful have data to support or oppose the policy aim.

What is next?

Once they agree an approach we will need to watch this space. It may well be that the proposed changes will bring added complexity for conveyancers, as well as applying greater pressure on buyers to obtain formal valuations to support any apportionments made when filing the SDLT returns.

The closing date for comments on the  consultation was 22 February 2022 and we are yet to see the results of that consultation.

It is highly likely that there will be material changes to the SDLT rules and we would therefore advise taxpayers to approach property purchases with the potential SDLT changes in mind as there may be a motive to act swiftly to claim relief.

If you are anticipating a property purchase or have acquired a property in the last 12 months which is mixed-use or encompasses multiple dwellings, please don’t hesitate to get in touch as there may be an opportunity to reclaim overpaid SDLT from HMRC, or to plan for the correct SDLT to be paid at completion.