The rules around SDLT can become complex, particularly where you already hold a mixed-use property and subsequently acquire a residential property. Are you entitled to first-time buyers’ relief? Do you have to pay the higher rates of SDLT if you want to purchase a residential property? This depends on whether HMRC views your existing property as residential. As such, it is important for you to understand how your existing mixed-use property is classified as that affects how much SDLT you will pay when buying a residential property.
By Wai Ling Chin
What is a Mixed-Use Property?
According to HMRC guidance, a mixed-use property is one which incorporates both residential and non-residential elements. Common examples include:
- A property which consists of a shop and a flat or flats above it;
- A building combining offices within a dwelling; and
- A farmhouse plus farmland used for agriculture.
In general, a mixed-use property is not a residential property and hence will not affect your SDLT tax liabilities. However, in some circumstances, HMRC may treat part of it as a residential property for SDLT purposes, which may affect your tax bill.
Why Classification Matters
Whether you are entitled to first-time buyers’ relief or need to pay the higher rates of SDLT depends on whether you have a residential property at the completion of your purchase.
If you haven’t had one, you will be entitled to first-time buyers’ relief if the price of the property you are purchasing does not exceed £500,000.
If you have, higher SDLT rates may apply. These higher rates are 5% above the standard residential rates in each band.
This can result in substantial tax differences.
Residential SDLT Rates (Standard vs Higher Rates) from 1 April 2025
| Transfer value | Standard rates | Higher rates |
| Up to £125,000 | Zero | 5% |
| The next £125,000
(the portion from £125,001 to £250,000) |
2% | 7% |
| The next £675,000
(the portion from £250,001 to £925,000) |
5% | 10% |
| The next £575,000
(the portion from £925,001 to £1.5 million) |
10% | 15% |
| The remaining amount
(the portion above £1.5 million) |
12% | 17% |
Additionally, if you, and anyone else you are buying with, are first time buyers of a residential property, you pay no SDLT on the first £300,000 of a residential property as long as the purchase price is £500,000 or less.
It is therefore important to know what circumstances can cause HMRC to classify part of your mixed-use property as a residential property.
When is a Mixed-Use Property No Longer Classed as One?
The line between mixed-use and residential is not always clear. It all depends on the particular features of the residential element of a mixed-use property. If HMRC finds that it is a dwelling in its own right, it will be categorised as a residential property. This is usually the case where you can carry out your daily activities, from sleeping and cooking to washing, in the residential unit, particularly if it has its own entrance.
If the dwelling was already part of the property when you purchased it, you would not count as a first-time buyer. However, if you purchase a mixed-use property and later adapt part of it into a dwelling, you may still be entitled to the relief.
In addition to the features of the residential element, its value is also relevant. For the purposes of first-time buyers’ relief, as soon as it is classified as a dwelling, it will be counted as a residential property, irrespective of its value. However, the higher SDLT rates will only apply when the property is worth £40,000 or more.
Further Information
If you are unsure how SDLT applies to your situation, it is always wise to get professional guidance. Contact us today for tailored legal advice to make sure your next property purchase does not come with any unexpected tax surprises.
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