Heads up to farm owners – Multiple Dwellings Relief abolished
By Heather Bright, Partner and ARA specialist
When you purchase agricultural properties and land, your transaction may be subject to Stamp Duty Land Tax (SDLT).
Applying to land or property purchases in England and Northern Ireland, SDLT applies when you buy:
- Buy a new or existing leasehold
- Buy a freehold property
- Buy ‘transferred’ land or property through shares or a mortgage
- Buy property or land through shared ownership
SDLT rules become complex when agricultural land is considered because property typically has a range of uses and land might have both residential and commercial areas within the same plot.
Changing rates
When buying a farm or part of an agricultural business, SDLT rates may vary based on whether the land and buildings are considered residential or non-residential. Generally:
- Residential property – Includes any dwelling that has been used as a residence or is suitable for use as one, such as a farmhouse.
- Non-residential property – Includes land or buildings not considered residential, such as farmland, barns, and other outbuildings not used as a dwelling.
SDLT is due on purchases above certain thresholds, providing relief to lower value transactions. Current thresholds are:
- £250,000 for residential properties
- £150,000 for non-residential properties
Mixed-use properties
A farm purchase often involves mixed-use properties, comprising both residential (such as a farmhouse) and non-residential components (such as farmland and commercial buildings).
For larger farm holdings, six or more residential properties purchased in a single transaction can be considered commercial property for SDLT purposes.
SDLT for mixed-use properties is charged at non-residential rates, which can be lower than residential rates, potentially leading to tax savings.
Abolition of Multiple Dwellings Relief
Recent changes announced by the Chancellor in his Spring Budget have seen Multiple Dwellings Relief (MDR) on SDLT abolished.
Previously, under a single transaction or multiple linked purchases, a buyer would benefit from a relief on SDLT which allowed the payment of the tax on the average cost of one property multiplied by the number of properties bought.
For example, if you had purchased five houses in a single transaction for £1 million, then you could calculate SDLT in the following way:
- Divide the total cost (£1 million) by the number of properties (five) = £200,000
- The threshold for SDLT on residential property is £250,000, so each property alone is exempt
- Multiply the SDLT due on one property – in this case, nothing – by the number of properties bought.
- However, the minimum payment under MDR is one per cent of the total payment, so £10,000 in SDLT would be due.
This will now be abolished from 1 June 2024.
Other property tax considerations for agricultural businesses
The abolition of MDR removes a significant opportunity for tax savings for those purchasing farmland with multiple residential properties.
However, other reliefs may be available depending on the nature of the purchase. In particular:
- Buildings and structures relief – Although not technically a relief on purchasing the property, this allowance can make its running costs more manageable, provided the property is used for the commercial side of your business.
- First-Time Buyers Relief – Residential property on farmland may qualify for FTBR if you are a first-time buyer, raising the threshold to £425,000 for properties under £625,000.
For more information on planning for tax on the purchase of farmland or agricultural property, please contact us today.