Can HMRC challenge an SDLT mixed-use reclaim and also assess the 15% company rate?

Introduction

Yes. In some cases HMRC can look at both issues at the same time.

This usually arises where a company bought a property, a reclaim was later made on the basis that the property was “mixed use”, and HMRC then opened an enquiry. If HMRC conclude that the property was not mixed use after all, they may go on to consider whether the 15% higher rate for certain company purchases of dwellings applies instead.

This is a serious SDLT issue because the mixed-use rules, the company dwelling rules, and the enquiry rules all interact. The answer often depends not just on the facts of the property, but also on the procedural history: whether HMRC opened an enquiry in time, whether a closure notice has been issued, and whether any appeal was made within the statutory deadline.

The Question

A company purchased a property and later made an SDLT reclaim through an adviser on the basis that the property was mixed use because part of the land was said to have a commercial element.

HMRC then asked for evidence supporting that mixed-use position. Later, HMRC raised a further issue about whether the 15% SDLT rate under Schedule 4A Finance Act 2003 might apply because the property had been bought by a company and occupied by a connected individual.

The practical question is this: if the mixed-use reclaim fails, can HMRC treat the purchase as wholly residential and pursue the 15% company rate, and what should be checked first before deciding how to respond?

Nick’s Explanation

Nick’s explanation was that there were really two separate SDLT issues in play.

First, there was the original reclaim based on mixed use. Secondly, there was HMRC’s later consideration of the 15% rate for company purchases of dwellings.

In anonymised form, his key points were:

• the original adviser submitted a reclaim on the basis that part of the property had a commercial use
• HMRC then opened an enquiry and asked for evidence such as leases, insurance documents and statutory declarations
• it was not yet clear whether HMRC had issued a closure notice on that enquiry, or whether any closure notice had been appealed in time
• HMRC later raised a separate issue about the 15% rate because the buyer was a company and the dwelling was occupied by a connected person
• if the mixed-use argument fails, the property may be treated as wholly residential, which can bring Schedule 4A into play

Nick also highlighted the procedural point: before deciding how to handle HMRC, the taxpayer needs to establish exactly what has already happened in the enquiry. In substance, his advice was that the first step is to find out:

• whether HMRC issued a closure notice on the mixed-use enquiry
• if so, whether it was appealed within 30 days
• what evidence has already been sent to HMRC
• whether the existing adviser is continuing to deal with the matter

He also suggested asking HMRC for a short extension of time if more time was needed to gather documents and provide a proper response during an open enquiry.

The Law

SDLT on land transactions is charged under Finance Act 2003.

For present purposes, the main legal points are these:

• residential and non-residential or mixed-use transactions are charged under different SDLT rate structures
• a transaction is mixed use only if, at the effective date of the transaction, the subject matter includes both residential property and non-residential property
• where a company acquires a single dwelling, Schedule 4A Finance Act 2003 can impose a 15% SDLT rate unless an exclusion or relief applies
• HMRC may enquire into an SDLT return or amendment, and that enquiry is concluded by a closure notice under Schedule 10 Finance Act 2003
• if HMRC issue a closure notice and no appeal is brought within the statutory time limit, the taxpayer may lose the opportunity to challenge HMRC’s conclusion in the ordinary way

The mixed-use question is highly fact sensitive. Land is not automatically non-residential just because it is large, has outbuildings, or has been used informally in some way. The courts have increasingly taken a stricter approach to what counts as non-residential use.

Where taxpayers argue that a dwelling was not suitable for use as a dwelling at the effective date, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That case confirms that “not suitable for use” is not satisfied by ordinary disrepair, dated condition, or works that are desirable or even substantial. The condition must be serious enough to cross a fairly demanding legal threshold.

Analysis

The position can be analysed in stages.

1. Was the reclaim based on a genuine mixed-use argument?

If the reclaim relied on part of the land being in commercial use, the evidence matters greatly. HMRC will normally want objective material, not just assertion. That may include leases, licences, accounts, insurance records, planning documents, statutory declarations, photographs and evidence of actual use at the effective date of the transaction.

If the evidence is weak, informal, or only arose after completion, HMRC may reject the mixed-use treatment.

2. If mixed use fails, what is the default SDLT position?

If the property is not mixed use, it is usually treated as wholly residential for SDLT purposes. That does not end the matter. It may expose the transaction to a different charging rule.

3. Can HMRC then consider the 15% company rate?

Yes, potentially. Schedule 4A Finance Act 2003 applies where a company acquires a major interest in a single dwelling and no relieving provision takes the transaction outside the charge. If a connected person occupies the dwelling, that can be a strong indicator that the 15% regime needs to be considered carefully.

The key point is that the mixed-use issue and the Schedule 4A issue are legally distinct. A failed mixed-use argument does not itself create the 15% charge, but it can remove the taxpayer’s main reason for saying the purchase was outside the residential dwelling regime.

4. Why does the closure notice matter so much?

Because procedure can determine the outcome. If HMRC opened an enquiry into the reclaim and later issued a closure notice rejecting it, that closure notice normally had to be appealed within 30 days. If no appeal was made, the mixed-use point may effectively be closed off.

If, however, the enquiry is still open, or a closure notice was issued and appealed in time, there may still be scope to argue the facts and law properly.

5. Can HMRC run both points at once?

In practical terms, yes. HMRC may investigate whether the reclaim was valid and, if it was not, whether the correct residential charging rules include the 15% rate. That is why these cases need to be managed carefully and consistently.

6. What about claims that the dwelling was uninhabitable?

Sometimes taxpayers facing difficulty on mixed use try to argue instead that the property was not suitable for use as a dwelling at the effective date. That argument now faces a demanding threshold. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition threshold is relatively high. Serious defects may still qualify, but ordinary poor condition, modernisation needs, or substantial repair works will not necessarily be enough.

7. Why is the adviser handover issue important?

If one adviser submitted the reclaim and another adviser is later asked to take over, the new adviser needs the full file before giving a settled view. That includes HMRC correspondence, the original claim, evidence already sent, any closure notice, and any appeal documents. Without that, it is difficult to know whether the case is still live and what arguments remain available.

Outcome

The practical conclusion is that HMRC can potentially challenge a mixed-use reclaim and, if that challenge succeeds or is no longer appealable, go on to assess the transaction under the 15% company dwelling rules in Schedule 4A Finance Act 2003.

The taxpayer’s immediate priority is not to debate the merits in the abstract, but to establish the procedural position. In particular, they need to know whether the mixed-use enquiry is still open, whether a closure notice exists, and whether any appeal was made in time.

If the mixed-use point is still alive, evidence should be reviewed urgently. If it is no longer open, attention may need to shift to whether Schedule 4A applies and whether any exclusion or relief can be relied on.

Practical Steps

• obtain the full file from the current or former adviser, including the original reclaim, HMRC letters, evidence submitted and any closure notice
• check the enquiry timetable carefully, especially whether HMRC issued a closure notice and whether any appeal was lodged within 30 days
• review the factual basis for mixed use at the effective date of the transaction, using objective documentary evidence
• consider whether the property was in fact a single dwelling acquired by a company and whether occupation by a connected person brings Schedule 4A into point
• check whether any statutory relief or exclusion from the 15% rate may apply
• if HMRC have set a short deadline and the enquiry is still open, ask for a reasonable extension so a complete response can be prepared
• avoid relying on an “uninhabitable” argument unless the condition evidence is genuinely strong, bearing in mind the high threshold confirmed in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

Conclusion

A failed mixed-use SDLT reclaim can have wider consequences. Where a company bought a dwelling and a connected person occupied it, HMRC may move from disputing mixed use to considering the 15% rate under Schedule 4A. In these cases, the facts matter, but the procedural history matters just as much. The first job is to establish exactly where the HMRC enquiry stands.

Legal References Used

• Finance Act 2003
• Finance Act 2003, Schedule 4A
• Finance Act 2003, Schedule 10
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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