The CIOT has responded to HMRC’s consultation on proposed changes to the SDLT rules for: (1) acquisitions of mixed-use property, apportioning the SDLT rather than charging the whole to the lower non-residential rates, and (2) multiple dwellings relief.
1. Apportioning SDLT on mixed-use property transactions:
a system of apportionment between residential and non-residential elements would remove any incentive to treat what is in reality residential property as non-residential to take advantage of the lower rates;
apportionment could, however, add unwelcome complexity and increased cost;
apportionment would lead to generally higher rates of tax for mixed-use transactions;
the proposed apportionment method could lead to inconsistency, with similar transactions treated differently for tax purposes. For example, the proposed method would calculate the tax twice, based on the whole consideration being for (1) residential, and (2) non-residential, with the two tax figures then reduced by the actual proportions of consideration relating to the two parts. This would effectively subject even a relatively small residential element to a disproportionately high tax rate;
a calculation method which applied the residential tax rates which otherwise would apply up to the level of consideration for the residential element (and on that slice of consideration) would overcome the above apportionment method problem;
an alternative proposed calculation, where mixed-use property would only be taxed at non-residential rates where the non-residential element exceeded 50% of the consideration, could provide a degree of certainty, but would also introduce a cliff edge and potentially disincentivise development of mixed-use properties.
2. Multiple dwellings relief:
proposals for reform appear to eliminate ‘inappropriate’ claims but introduce potential ‘adverse consequences’ such as ‘requiring an intention test that is not wholly consistent with a transaction tax … and potentially impacting business transactions, whereas the targeted abuse occurs in transactions by individuals’;
although the consultation identifies where MDR is being used in ways that were not intended, it does not indicate whether it is achieving the policy aim of ‘promoting the supply of private rented housing’.
The CIOT has responded to HMRC’s consultation on proposed changes to the SDLT rules for: (1) acquisitions of mixed-use property, apportioning the SDLT rather than charging the whole to the lower non-residential rates, and (2) multiple dwellings relief.
1. Apportioning SDLT on mixed-use property transactions:
a system of apportionment between residential and non-residential elements would remove any incentive to treat what is in reality residential property as non-residential to take advantage of the lower rates;
apportionment could, however, add unwelcome complexity and increased cost;
apportionment would lead to generally higher rates of tax for mixed-use transactions;
the proposed apportionment method could lead to inconsistency, with similar transactions treated differently for tax purposes. For example, the proposed method would calculate the tax twice, based on the whole consideration being for (1) residential, and (2) non-residential, with the two tax figures then reduced by the actual proportions of consideration relating to the two parts. This would effectively subject even a relatively small residential element to a disproportionately high tax rate;
a calculation method which applied the residential tax rates which otherwise would apply up to the level of consideration for the residential element (and on that slice of consideration) would overcome the above apportionment method problem;
an alternative proposed calculation, where mixed-use property would only be taxed at non-residential rates where the non-residential element exceeded 50% of the consideration, could provide a degree of certainty, but would also introduce a cliff edge and potentially disincentivise development of mixed-use properties.
2. Multiple dwellings relief:
proposals for reform appear to eliminate ‘inappropriate’ claims but introduce potential ‘adverse consequences’ such as ‘requiring an intention test that is not wholly consistent with a transaction tax … and potentially impacting business transactions, whereas the targeted abuse occurs in transactions by individuals’;
although the consultation identifies where MDR is being used in ways that were not intended, it does not indicate whether it is achieving the policy aim of ‘promoting the supply of private rented housing’.
