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Tax Administration and Maintenance Day - property tax consultations

Tax Administration and Maintenance Day - property tax consultations


On Tuesday 30 November 2021, the government published a series of tax-related consultations and policy papers as part of 'tax administration and maintenance day'. Among these were a number of interesting consultations relating to real estate.

Stamp Duty Land Tax (SDLT): mixed-property purchases and multiple dwellings relief

HMRC have launched a new consultation which looks at (a) reforming the way in which SDLT applies to 'mixed' property transactions (i.e. transactions involving a mixture of residential and non-residential property), and (b) introducing restrictions on the availability of multiple dwellings relief (MDR).

Mixed property transactions

Under the current rules, a transaction will generally be subject to the residential rates of SDLT only if the subject matter of the transaction consists entirely of residential property. As a result, a mixed transaction is subject to the (significantly lower) non-residential rates.

HMRC are concerned about transactions without any meaningful non-residential element benefiting from the lower non-residential rates in a way which they consider to be unfair. There is particular concern about so-called 'SDLT reclaim agents', who encourage purchasers of what is in substance a private dwelling to amend their land transaction returns to claim the non-residential rates by reference to a small, and sometimes questionable, non-residential element of the land.

The consultation asks for views on two proposals for reform. The first would require purchasers to apportion the consideration between the residential and non-residential elements (with the relevant rates applying to each portion). The second proposal is to introduce a rule whereby an acquisition of mixed use property is only taxed at the non-residential SDLT rates if the non-residential element of the transaction is above a certain threshold (50% is suggested). In either case, transactions involving the purchase of 'six or more dwellings' would remain subject to the non-residential rates in their entirety (unless the purchaser claims MDR).  

Whichever approach is adopted, these measures would have a broader effect than simply shutting down questionable mixed-use claims. Valuations of the different elements may need to be obtained in order to quantify SDLT liabilities or to determine the percentage of the transaction which is non-residential. Applying the residential rates is also considerably more complicated. Having said that, the 'six or more dwellings' rule should ensure that transactions involving larger-scale mixed developments are not affected.


Where the conditions are met, MDR allows purchasers of two or more dwellings to calculate their SDLT liability on a dwelling-by-dwelling basis, using the average consideration per dwelling. This enables the nil and lower rate bands to be claimed for each dwelling, rather than only once, reducing the overall SDLT liability.

HMRC are concerned about abuse of this relief, especially where purchasers argue that what is in substance a single dwelling is in fact two dwellings (on the basis that a small subsidiary element with basic amenities constitutes a separate dwelling). HMRC are therefore consulting on a series of options to restrict the availability of MDR to rule out claims of this sort, for example by limiting it to purchasers acquiring the dwellings for business purposes, or allowing it to be claimed only in respect of three or more dwellings.

Again, these reforms would have a wider impact than simply preventing abuse, although those affected should mainly be private purchasers rather than businesses.

Call for Evidence: Simplifying the VAT Land Exemption

HMRC have published a summary of the responses to a 'call for evidence' on the VAT exemption for land which had been published in May. The call for evidence asked for comments on a wide range of proposals, some of which, if implemented, would represent a radical overhaul of the existing regime.

The call of evidence appears to have been met with an equally wide range of responses, with few consistent themes emerging. The majority of respondents did, however, call for caution before any sweeping changes are introduced.

HMRC have discarded many of the suggestions put forward in the call for evidence, but have decided to consult further on (a) establishing a workable definition of "short term" or "minor" interests in land that would be automatically standard-rated, and (b) the implications of making all supplies of land standard rated for VAT purposes, subject to a limited number of exemptions. HMRC acknowledge that the latter proposal would be a significant change which was opposed by a clear majority of respondents, but nevertheless are keen to understand better what the challenges and unintended consequences of such a reform would be.

HMRC also note that they are open to discussing other suggestions as part of this process. In particular, the door has been (tentatively) left open for reform of the existing option to tax anti-avoidance rules. Given the difficulties these provisions can cause in arm's length commercial transactions without any tax avoidance motive or purpose, meaningful reform in this area would be very welcome.  

Business rates: technical consultation

As promised in the Autumn Budget, the government has launched a technical consultation on how to implement certain of the changes it promised to make to the business rates regime, being:

  1. Improvement relief for eligible works;

  2. Certain 'green' measures (e.g., exemption for eligible plant and machinery used in onsite renewable energy generation and storage (e.g. solar panels) from 2023 to 2035); and

  3. A move to a 3-yearly property revaluation cycle

For more detail on what was promised in relation to business rates in the Autumn Budget see here.

A little more detail was provided on the works that will be eligible for the improvements relief: (i) the works must result in a positive change in the rateable value of the building (e.g. increase in size, upgrades to the property's physical state or the addition of other rateable plant and machinery) and (ii) the property must remain occupied by the same ratepayer. The intention behind the second condition is to ensure that the relief is for ratepayers investing in their own "active" business, and not for landlords, property developers or in-coming occupiers.

The 'green' measures were largely as expected, although the government did note that to be eligible, the plant and machinery must be used for the generation or storage of power where the source of energy is 'wholly or mainly' from renewables. The government is also looking to provide relief for low carbon heat networks.

As regards 3-yearly valuations, the consultation sets out a new requirement (not mentioned in the Autumn Budget) for business rate-payers to update the Valuation Office Agency each time circumstances change in relation to their property (e.g. rent increases, alteration and changes to occupation) and to provide an annual confirmation statement. Some businesses (e.g. pubs, petrol stations) will also need to provide information about their trade and accounts where relevant to their rateable value. There is also to be a penalty regime for failure to comply with these new obligations. These changes are likely to result in increased administrative burdens for business rate-payers, notwithstanding the stated intention for the system to be "straightforward, easy to use and [adding] minimal additional burden on ratepayers".

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