Whether you are considering buying in England but shudder at the thought of paying all the Stamp Duty on your new home, or in Wales and baulk at the amount of Land Transaction Tax that will be due on your new property, a little known loop-hole may be able to save you a considerable amount of money.
Tax payable on multiple use properties is considerably less than that due on a simple house transaction but many people are unaware of this. For example, a standard £2,000,000 residential property as a principle residence would attract a Stamp Duty charge of £153,750 or Land Transaction Tax of £171,200. If the property was Mixed Use, the Stamp Duty would reduce to £89,500 or Land Transaction Tax to £98,500.
So what qualifies as a Mixed Use property? These are properties that have either a commercial or agricultural side line. Country properties which qualify tend to have agricultural land, although there is no expectation that the owner will be a hands on farmer. HMRC’s guidance on what qualifies is unclear but there must be a historic or current commercial use, such as a grazing agreement, and not simply the potential to do so in the future. “If you can show that part of the property is non-residential, then the whole of the property will be classed as mixed use”, according to a solicitor at Paris Smith.
A farmhouse with 25 acres of good pasture that is rented to a local farmer would qualify as mixed use but there are no actual guidelines on how much land a mixed use property must have. A cottage with 5 acres of land that has been let to a farmer for a number of years would qualify as mixed use whilst a stately home with parkland may not as it could be considered as a garden. The same farmhouse with a landscaped garden, a paddock and a couple of stables would not qualify although if you had 15 stables and an indoor school, this is likely to be considered a commercial enterprise and qualify as mixed use. A house with holiday cottages would qualify as mixed use whilst a house with the barn converted to a home office would not. A property with a three acre vineyard would qualify as viniculture is agriculture and it doesn’t have to make any money to qualify.
Unless it is a cut and dried case, however, there is an element of risk if it is “likely” to be considered Mixed Use. Buyers would initially pay the lower rate of tax on the basis they believe the property is mixed use, then they must wait and see if HMRC agrees. It has two years to challenge the payment so it is always advisable for the purchaser to keep the funds available to pay the difference in case it is disputed.
The downside of buying a mixed use property comes when it is time to sell. Capital Gain tax is payable on all profits but the potential benefits may well outweigh the downsides and those considering selling would be wise to consider whether their property is, or could be adapted to be, mixed use in order to tempt buyers.
If you are considering buying a property in Pembrokeshire, Carmarthenshire, Ceredigion or Gower, then give West Wales Property Finders a call on 01834 862816. With over 14 years’ experience of the West Wales market and unparalleled contacts, we are perfectly position to advise any potential buyer on all aspects of their property purchase. Over 90% of the houses we have found for our clients never hit the open market, thus allowing them access to the cream of the crop whilst saving them time, stress and often money too. http://www.westwalespropertyfinders.co.uk
The Telegraph – Saturday, 12th January https://www.telegraph.co.uk/property/uk/little-known-loophole-could-save-thousands-next-stamp-duty-bill/