Since the Chancellor’s Stamp Duty changes came into effect in early December, many potential homebuyers at the top end of the market are feeling the sting of significantly higher rates. Houses bought for over £1.5 million will now be subject to 12% Stamp Duty compared to the previous rate of around 5% – a huge increase in what homebuyers will have to pay the taxman.
For some buyers, staying put and extending or improving their current property may be a more financially viable alternative to moving. For others, they will simply bite the bullet, move home anyway and hand over their 12% to HMRC. For canny homebuyers, however, particularly those who like the idea of buying a house with land, a flock of sheep or a herd of cows, could slash the stamp duty that they have to pay to only 4%. So, how does it work?
In simple terms, you have to be able to persuade HMRC that your property is what is termed as ‘mixed use’, a property where there is an element of the property or land that is used for commercial purposes, and in the case of the latter, this is generally agricultural use. There are no official guidelines as to what percentage of your land has to be working farmland, however, and HMRC deals with each property on a case-by-case basis.
So, how do you know if your property is going to qualify? The first thing to bear in mind is that, as stamp duty is paid on completion, you will need to have all the evidence in place before you transfer funds on completion day. This may require some negotiating with the vendor, for example, a grazing agreement with a local farmer who might be using the land for cattle or sheep. Or they may have receipts that can prove that part of the land has been used for commercial forestry.
There is also an element of common sense that has to come into play. With the current spate of tax avoidance scandals, HMRC is unlikely to let you get away with anything unless it has been thoroughly scrutinised. A few apple trees and a couple of chickens are not going to be enough to convince them. However, a significant chunk of your land let to a local farmer could be just the ticket. This combined with a converted outbuilding let to tenants or holidaymakers might make the case even stronger.
It’s therefore all about doing your homework, questioning the vendor prior to contracts being exchanged and making it a condition of your sale that sufficient evidence is in place to help you make a strong case to HMRC. This is more work for the buyer, but with the possibility of saving 8% on stamp duty as an incentive, surely worth their while.