In this Real Estate Tax Update, we discuss some of the key tax developments affecting the real estate sector resulting from the October budget and the subsequent Tax Administration and Maintenance Day, held on 30 November 2021

SDLT – reliefs for mixed use property and multiple dwellings

The Government is concerned that reliefs for purchases of mixed property and multiple dwellings are being exploited to unfairly reduce some purchasers’ tax liability. In response, the Government has published a consultation seeking views on proposed changes to these reliefs. While this is only at consultation stage at the moment, the proposals suggest that significant changes will be on the way.

Current rules for mixed used properties

Mixed use property purchases (those involving both residential and non-residential property) are currently subject to the non-residential rates of SDLT, which are lower than residential rates.  This is the case no matter the proportion of the property that is non-residential or the proximity between the residential and non-residential parts of the property. It’s also important to note that the higher rates of SDLT for additional dwellings (HRAD) do not apply to mixed use property purchases. These generous rules have long been vulnerable to exploitation, and it’s no surprise that the Government is looking at changes.

What are the proposed changes to mixed use property purchases?

The Government has proposed two new approaches to the calculation of SDLT for mixed use properties:

Approach one: The first approach involves an apportionment method. This means that the residential portion of a mixed use property purchase would be taxed as residential property and the non-residential portion would be taxed as non-residential property. In addition, the HRAD and non-resident surcharge would apply to the residential portion. On the face of it, this seems like a fair and reasonable approach. However, inevitably it will add complexity to SDLT calculations and valuation, which is inherently subjective, might become a key consideration in calculating SDLT on regular transactions.

Approach two: The second approach involves a threshold methodology, which would mean that a purchase is only treated as mixed property if the consideration for the non-residential element is more than a certain proportion of the entire consideration. This approach raises questions, such as on what basis a threshold might be set and how an apportionment would be determined.

The consultation will need to run its course, but it now appears very likely that we will be seeing some fundamental changes to SDLT.

How might Multiple Dwellings Relief change?

Multiple dwellings relief (MDR) applies to purchases of multiple dwellings (two or more) in a single transaction or that are part of a series of linked transactions. The purpose of the relief is to align the SDLT with the amount that would have been payable had the dwellings been purchased individually from separate vendors in separate transactions.

Where the relief applies, the purchaser can choose that the SDLT  is determined by the average value of the dwellings and not the combined value of the dwellings. This relief can lead to significant SDLT savings.

The consultation proposes four ways in which MDR could be amended to address the misuse of the relief:

Approach one: This would permit MDR where the purchaser intends to use all the dwellings for a qualifying business use and uses the dwellings for that purpose for a period of three years following the acquisition (or to the date of sale of the dwelling, if earlier).  A “qualifying business use” would be for:

  • development or redevelopment and resale
  • exploitation as a source of rents.

This would mean that, for example, where a block of four flats is purchased and three are for a qualifying business purpose, MRD would be unavailable for the whole purchase.

Approach two: An alternative would be to permit MDR to be claimed for the individual properties that are acquired for qualifying business use. So, taking the above example, MDR would be available in respect of three of the four flats. In that scenario, the purchaser would need to identify the value to be attributed to the property not to be used for business purposes and deduct that amount from the total consideration of the properties.

Approach three: The third approach would align the MDR rules with the subsidiary dwelling rule that currently applies to HRAD. This would mean that part of a building, or a building within the grounds of another dwelling, would not count as a separate dwelling for the purposes of MDR unless its value is a third or more of the total price of the entire property.

Approach four: This final option involves limiting MDR to the purchase of three or more dwellings. However, whilst the consultation paper acknowledges that this approach is the most straightforward, it is also noted that it will not eliminate the misuse of MDR.

It is expected that the outcome of the consultation will be made available in Spring 2021.

Simplifying VAT on land and property – no changes proposed

For some years, the Government has been considering ways to simplify the VAT treatment of land and property. In 2017, the Office of Tax Simplification (OTS) issued a report identifying a number of potential options including:

  • Option one: removing the ability to opt to tax and making all relevant transactions exempt
  • Option two: removing the ability to opt to tax and making all land and property taxable at a reduced rate
  • Option three: making all commercial land and property taxable at the standard rate with an option to exempt.

Although each of those options were rejected by the OTS, earlier this year the Government launched a call for evidence to consider ways to simplify the land and property VAT exemptions.

The Government has concluded that it won’t make any legislative changes at this stage. Instead, it intends to have more discussions with businesses in the early part of 2022.

Residential Property Developer Tax

As reported in our November FAQs (available here), the introduction of a new Residential Property Developer Tax (RPDT) has now been confirmed. The legislation implementing the RPDT was published on 4 November 2021, and it will come into effect from 1 April 2022.

Broadly, the tax will apply to a company that does anything in connection with UK land in which it has, or has had, an interest for the purposes of the development of residential property (referred to as RPD activities). Typical RPD activities include seeking planning permission, marketing and dealing in or constructing residential property.

If you would like any advice on property tax in the UK, please speak to our experts.

Contributors: Mark Braude and Laura Allum


This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

16 December 2021


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