Introduction
Welcome to the Autumn 2023 indirect tax bulletin. In this edition, we discuss mixed use property and the potential Stamp Duty Land Tax (SDLT) savings when non-residential rates apply. We also take a look at any relevant updates in the world of VAT and share with our readers any VAT issues the team are facing internally.
SDLT Mixed Use Property
SDLT is usually payable when land and property is purchased. There are different rates depending on whether the property is classed as residential or non-residential. Residential rates attract SDLT up to 12%, although this can be as high as 15% in certain circumstances. Whereas the highest non-residential rate is 5%. Non-residential rates are commonly associated with purchases of commercial property, such as shops or offices, however they also apply to mixed use property. A mixed use property is one with both residential and non-residential parts, for example a purchase of a property which consists of a shop on the ground floor with a flat above. It is based on use at the time of acquisition, although historic use may be relevant in certain circumstances. Both HMRC and Tribunals disregard the buyer’s future intentions.
| Purchase Price | Residential Rates | Non-Residential Rates |
| £500,000 | £12,500 | £14,500 |
| £965,000 | £37,750 | £37,750 |
| £1,500,000 | £91,250 | £64,500 |
| £2,000,000 | £151,250 | £89,500 |
*calculations assume the buyer(s) is not a first time buyer, UK resident and the higher rates do not apply. Based on thresholds applicate on the 22 Aug 2023.
In this situation, lower SDLT for residential properties up to £965,000, but non-residential rates are lower on purchases exceeding this amount. At £2m the savings are £61,750 (£151,250 – £89,500) when non-residential rates apply. Given the potential savings that can be achieved using non-resident rates, it’s not surprising to see why many buyers query whether the property they are acquiring can be classed as mixed use. Caution and proper advice are recommended as this is an area frequently targeted by HMRC. At Dyke Yaxley, we can help you understand whether the property you are buying can be classed as mixed use and benefit from non-residential rates of SDLT. Note that in November 2021 HMRC launched a consultation inviting comments to a proposed apportionment basis for mixed property purchases, with the aim of reducing the opportunity of abuse of these rules. The consultation closed in February 2022 but at the time of writing nothing further has been published by HMRC on this issue.
Updates
A new penalty regime was introduced for all VAT Return periods starting on or after the 1 January 2023. Default surcharges are replaced with separate penalty regimes for late submission and late payment. Late submissions are subject to penalty point system. Each VAT Return submitted late incurs one penalty point and a £200 penalty is charged once a threshold is breached. The threshold depends on whether the business submits VAT Returns annually, quarterly or monthly, with the thresholds being 2, 4 or 5 points respectively. Penalties for late payment start with 2% of the unpaid balance 15 days after payment was due, with a further 2% levied on any amount still unpaid after 30 days. However, HMRC have given businesses a period of familiarisation until the 31 December 2023, with no penalties charged if payment is made in full within 30 days of the due date. Internally, the team are facing issues with old VAT numbers resurrected when clients are re-registering for VAT. To complicate matters further the old VAT numbers are showing as invalid. We contacted HMRC who inform us this is a national issue that they are working to resolve.