It is common these days for individuals to work from home. For tax purposes, their attention is often focused on claiming tax relief for business expenses incurred while homeworking, or on whether capital gains tax ‘principal private residence’ relief will be restricted when the house is sold.
However, what is the stamp duty land tax (SDLT) position when a house is bought and used for ‘mixed’ (i.e., business and private) use? This article looks at the SDLT position (note: different rates, legislation etc. apply for land and buildings transaction tax purposes in Scotland, and land transaction tax in Wales).
Whether an individual’s home is purely residential or mixed (i.e. residential and business) can have a significant effect on the SDLT liability. The maximum rate of SDLT for a UK resident individual buying a residential property (excluding the 3% supplement on additional properties, or the 2% surcharge for purchases of residential property by non-UK residents) is 12%; By contrast, for non-residential land and property, the maximum rate is only 5%. The lower rates also apply to mixed use land and buildings.
The SDLT saving if the individual’s home is used for business as well as residential purposes can be considerable, particularly for more expensive properties. For example, in Goodfellow & Anor v Revenue and Customs  UKFTT 750 (TC) (see below), the amount of SDLT at stake was £48,500. It is therefore unsurprising that there have been several cases before the tribunal on whether the lower rate of SDLT applies.
In Goodfellow & Anor, the appellants completed the purchase of a property on 21 March 2016 for £1,775,000, on which the appellants paid SDLT of £126,750. They entered the property as residential on their SDLT return. Subsequently, the appellants submitted an SDLT overpayment relief claim. It was argued that the property had been misclassified as residential and should have been entered as mixed use. A claim was made for SDLT overpaid of £48,500. HM Revenue and Customs rejected the appellants’ claim that the property was mixed use. The appellants appealed.
Office at home
The first appellant stated that he used the room above the garage as an office for his company. However, the First-tier Tribunal found that the room currently used by the first appellant as an office was wholly residential. It was in principle no different than working from a study, spare room or even the dining room table. Home working saved the first appellant from making the long journey to his company’s headquarters.
Furthermore, the property was set in about 4.5 acres, with a stable yard and paddocks. Two paddocks were let to a neighbour who grazed horses there. The rent was £1 per month with responsibility for looking after the land. The tribunal found that the paddocks formed part of the grounds for recreational purposes and were residential. The tribunal concluded that for SDLT purposes the whole property was residential, with no non-residential element.
In Goodfellow & Anor, working at home saved the first appellant a long journey to his company’s headquarters; the home office could be used as a spare room; and no business rates were paid in respect of it. Mixed use treatment may be more hopeful if the home office is the owner’s principal place of business.
The above article was first published in Business Tax Insider (July 2020) (www.taxinsider.co.uk).