Stamp Duty Land Tax (SDLT) applies on a purchase (or grant of a new lease). The questions are ‘what’s chargeable’ and ‘what rate do I pay at’?
When is SDLT payable?
Liability arises on the ‘effective date’, which is usually the completion date. However, if you pay the majority of the purchase moneys before completion, or the seller allows you unrestricted access to start doing work, then that becomes the effective date.
What is SDLT payable on?
This is on the ‘consideration’ – the value of what the buyer provides. If there is VAT on the purchase price, then the VAT is included in the SDLT calculation.
Auctioneers’ fees are included as consideration if you are contractually obliged to pay these. However, if you pay a reservation fee then it is arguable that this isn’t part of the SDLT calculation.
An exchange of land does not attract SDLT, nor does a ‘partition’ (where land jointly owned is split between the owners). However, SDLT is payable on any ‘equality money’ (or other consideration given).
What if you can’t quantify the consideration at the effective date? For example, where this is based on accounts to be drawn up, or on obtaining planning permission. In this case, you must pay SDLT on the estimated figure and then file a new SDLT return when the figure is ascertained. You can apply to defer payment of SDLT on the unascertained or contingent amount. However, if all that is happening is that you are paying by agreed instalments, then unfortunately the whole SDLT has to be paid once the effective date is reached, not as and when the instalments are paid.
Chattels are not, strictly speaking, included in the SDLT calculation, but ‘fixtures’ (something that cannot be removed without causing significant damage) are. So a fitted unit designed to go in that particular property, which cannot easily be relocated, would be a fixture, but a picture that was, due to its size and weight, bolted onto the wall instead of being hung, would still be a chattel because it is a standalone artifact that can be enjoyed anywhere.
‘Chattels’ can include other items, especially in commercial units, so it’s worth taking advice on this.
The consideration is usually the price paid – but there is an exception where an individual transfers or leases to a limited company which is controlled by the individual or by a connected party. Whatever the actual payment (including shares), the transaction is deemed to be at not less than open market value.
Buy the company – not the land?
An attractive option if the land is owned by a limited company. Why? The purchase of shares will not attract SDLT. Instead, you will pay stamp duty on the shares purchased but at a flat rate of 0.5% only.
What rate of SDLT is payable?
The crucial distinction is between residential and non-residential (or ‘mixed use’) land. This governs the scale of SDLT – residential or non-residential. Your future intentions for the use of the land will generally be irrelevant, as what counts is the use of the property at the effective date.
A reminder of rates
Residential rates apply from £250,001 (at 5% as SDLT applies to properties over £250,000) and rise in bands to 12%. A purchase by a limited company or by an individual who already owns another residential property will cause the higher additional rate of 3% to apply, as will a purchase of a second or additional property in your own name.
A ‘super rate’ of 15% applies where a limited company purchases a ‘dwelling’ at more than £500,000. This doesn’t apply however if the property is for redevelopment, resale in a property-trading business, or for use in a property rental business.
If you are non-UK-resident (or a company controlled by non-UK-residents) an additional 2% charge applies.
If, however, the property is classed as nonresidential then none of the above apply and the non-residential SDLT above £150,000 is £100,000 at 2% and the balance at 5%.
Residential land
The key here is whether the property is ‘suitable for use as a dwelling, or in the process of being adapted or constructed as a dwelling’. Hotels, guesthouses and care homes do not count as dwellings (even though people are living in them) and caravans, houseboats and motorhomes are chattels and therefore cannot be dwellings (although with static caravans or mobile homes this may depend upon how permanent the structure is).
What if it’s bare land? This will usually attract SDLT at the non-residential rate, even if it has planning permission for residential development, unless construction has started. Demolition and clearing the site do not trigger the residential rate, but once building starts the land is classed as residential. HMRC guidance indicates that this is the point at which building works on top of the foundations has begun.
Uninhabitable properties – demonstrating that the property is not suitable as a dwelling on the effective date means the non-residential rates apply. However, following a Tribunal decision in March 2023 the rules on this are now more stringent. The property must be near derelict, have structural defects, or have defects which are a danger to the occupier and cannot be easily rectified. Defects caused by age or ordinary wear and tear are unlikely to qualify.
Garden and grounds – the land that is used as the amenity of garden and grounds is still residential. Whether extensive areas are actually grounds is a matter of fact in each case. However if you buy an area of land (say part of the garden as a building plot) and you don’t also buy the dwelling, then this will still bear residential rates of SDLT but not the additional 3%.
Everything that is not wholly residential is, by default, non-residential. This includes mixed use.
Linked transactions
Whether one transaction is linked to another is a matter of fact, but transactions with the same parties (or parties connected to them) are an indication. The SDLT on linked transactions will be assessed as if it were all one transaction and then apportioned to each transaction. So in a subsequent purchase linked to an earlier one, a revised SDLT return is required for the earlier one. The grant of an option will be a linked transaction with its exercise. However, if the option is assigned to a third (unconnected) then it will not be linked.
Reliefs and exemptions
Six or more dwellings – if bought in a single transaction you can choose to treat this as non-residential.
Multiple Dwellings Relief (MDR) – more than one dwelling bought in a single or a linked transaction. Work out the SDLT on the average price and multiply by the number of dwellings. This will usually result in a tax saving but you must pay a minimum of 1% of total consideration. HMRC may query whether the averaging process is a ‘just and reasonable’ apportionment if this is a linked transaction.
Mixed-use plus MDR – typically a retail or office use with flats above. Apportion the price between residential and non-residential and apply MDR to residential. Provided MDR is applied, the additional 3% rate does not apply. However, if the transaction becomes linked to a wholly residential transaction, then the relief from 3% will be clawed back.
Mixed use over linked transactions – buying both residential and non-residential property in a single or a linked transaction will result in the non-residential rate applying to everything (but you cannot then apply MDR).
The following exemptions apply only to buyers who are developers or property traders and are limited companies or LLPs. These will secure 100% relief from SDLT, but relief will be withdrawn if more than a specified amount (£10,000 or 5% of purchase price, up to £20,000) is spent on refurbishment (not including reconstruction work), or if it is intended to let the property or allow a director or employee to occupy. Where the property exceeds 0.5 hectares, partial exemption will apply:
Buying a probate property – must be purchased from the executors and must have been the deceased’s main residence at some time in two years before death. There are certain conditions that need to be met.
‘Part-exchange’ with an individual buying a new property from a house-building company – acquired property must have been seller’s main residence at some time in previous two years and seller must intend to occupy new residence as their main dwelling.
‘Chain-breaking’ – the seller must have intended to sell a property they have occupied as their main residence at some time in previous two years, intended to occupy new property as main residence and the sale has fallen through.
Buying from an individual relocating for employment – this has simile rules to chain-breaking, where the seller is obliged to re-locate for employment.
The above list is not exhaustive and there are other opportunities which I will cover in a forthcoming article.
Freeport land
This is land lying within a designated Freeport tax site and 100% relief from SDLT applies if it is intended to be used in a ‘qualifying manner’ (which includes developing for use by anyone in a commercial trade).
The information above applies to England and Northern Ireland, but similar regimes apply in Wales and Scotland. SDLT is a complex and self-assessed) tax so do seek specialist advice – errors can be costly!
Shaz Nawaz
YPN Note:
With apologies to Shaz for publishing the wrong image against his article in the July issue. We all confirm that this image, this month, is definitely Shaz!