There are no two ways about it. Stamp duty land tax (SDLT) is complex. The legislation is, at best, Labyrinthine, and HMRC’s interpretation of it even more so.
For property developers, given the differences in tax rates for residential property compared to non-residential or mixed use property, it’s important to understand what the phrase “residential property” actually means for SDLT purposes.
Any property which does not fall into any of those three categories will be non-residential. Where a purchase consists partly of residential property and partly non-residential property it is classed as “mixed use” and the non-residential rates of SDLT apply.
Whether a property is classed as residential or non-residential is important, particularly for property developers because a developer who buys or who is in the process of constructing residential property which consists of more than one dwelling can claim “multiple dwellings relief”. This can significantly reduce the SDLT payable.
Where a developer buys mixed use property, multiple dwellings relief will still be available providing the mixed use property includes two or more dwellings. Incidentally, there is an extremely good argument for saying that, in the case of mixed-use land, the 3% surcharge should never be applied to the dwellings element.
In most cases where a developer is buying an existing building it will be relatively easy to decide whether or not at the point of purchase it is a dwelling. But what about where the developer buys land with the intention to build houses on it? On the face of it this is non-residential because at the time of purchase there are no dwellings on the land. But what is the position if construction of houses has already started? At what point does land become “dwellings”.
The position has always been unclear but, in order to provide more clarity, HMRC last year expanded their guidance on the subject. It is their view that land becomes “dwellings” if the foundations have been dug and poured and bricks have started to be laid on top of the foundations even if they haven’t reached ground level. This could provide developers with an opportunity to mitigate SDLT by carrying out some construction work. Although this could provide benefits in terms of SDLT, geat care will need to be taken to ensure that, if the purchaser is undertaking any of this work, SDLT is not triggered early because he or she has unfettered access to the land in question.
Friend Partnership is able to provide specialist SDLT advice for developers and others considering a property purchase. Please contact David Gillies on 0121 633 2007, send an email to david.gillies@friendllp.com or alternatively, complete the form below.
Friend Partnership is a forward-thinking firm of Chartered Accountants, Business Advisers, Corporate Finance and Tax Specialists, based In The UK
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