SDLT increasing for residential properties

23 Mar 2011

The Stamp Duty Land Tax (“SDLT”) rate for residential transactions where the chargeable consideration exceeds £1 million will increase to 5% from April 2011. So, for a residential transaction where the purchase price is £1 million, the SDLT liability will increase to £50,000 – that’s an additional £10,000!

It is therefore very important to be absolutely clear as to the distinction between residential and non-residential properties. A residential property is defined in the Finance Act 2003 as being a property that is used as a dwelling, is suitable for use as a dwelling or is in the process of being constructed / converted into a dwelling. A care home, children’s home, student’s halls of residence or a hotel will not be considered residential.

The Practical Law Company has issued a Practice Note which considers a variety of different transactions and how the new SDLT rate will apply to each. For example, (and in each scenario it is assumed that the consideration exceeds £1 million.

1. sale of non-residential property for residential development – if on the “effective date” (usually the completion date) the property is non-residential, then the higher SDLT rate will not apply;

2. sale of a residential property for commercial development – the higher rate of SDLT will apply here as the use of the premises at the effective date is residential;

3. sale of undeveloped land – this will depend whether the land forms part of a garden of residential property, in which case the higher rate of SDLT will apply;

4. mixed use properties – if a business is being run from one room in a house, then it is likely that the higher rate of SDLT will still apply. If the acquisition consists of a shop with a residential flat above, then the SDLT rate of 4% will apply;

5. sale of a residential portfolio – if there is a sale of six or more residential dwellings to the same buyer in one transaction then this will be regarded as a non-residential transaction and the 4% SDLT rate will apply; and

6. sale of a residential property and a separate non-residential property – this is a grey area and it is hoped that HM Revenue & Customs will provide clarity on this when it issues guidance in relation to the new 5% SDLT rate.