Prior to 2003, stamp duty was a fairly insignificant tax, but since the introduction of stamp duty land tax (SDLT), the rates have increased, as has the complexity. This article seeks to briefly outline some of the key matters to consider when acquiring (or, indeed, selling) property.
There are different SDLT rates, depending on whether you are acquiring wholly residential property or not. It is important to stress the word ‘wholly’, as if you are buying both residential and commercial property, as part of a single transaction or series of transactions, you would be acquiring a mixture, so can apply the non-residential rates.
Why is this important?
Well, not only is the top rate of SDLT for residential acquisitions 12%, as opposed to 5% for non-residential acquisitions, but if a company acquires residential property, or an individual is acquiring an ‘additional’ dwelling, the residential rates are increased by a further 3%.
It is not sufficient for a residential property to have 100 acres of land to be considered ‘mixed use’. If the owner can access and use the land, for their social or domestic purposes, it will still be considered part of the grounds of the dwelling and therefore residential. There needs to be some restrictions as to the owner’s use or, more usefully, a lease to an unconnected third party for exclusive occupation of a particular area. It is essential these are in place well before any sale, as HMRC will look at the history. Future intentions have no bearing on its status at the time of acquisition.
If you are buying a number of residential properties in a single transaction, do not forget the possibility of multiple dwellings relief, which may reduce your liability. Furthermore, if you are acquiring six or more residential properties in a single transaction, you can actually treat them as a non-residential, which may result in an even lower liability than claiming multiple dwellings relief.
The sale of a completed residential property may be more attractive to a buyer if they have the ability to claim multiple dwellings relief. An annexe is a good way of giving the buyer the ability to make such a claim, providing it is suitable for use as a separate dwelling.
What constitutes a separate dwelling?
For a start, it needs a bathroom, a living/sleeping area and a fully functioning kitchen. Many claims have failed at tribunal because the kitchen has insufficient cooking facilities. Any inter-connecting door to the main house should be lockable from both sides and the annexe should have an independent entrance. Ideally, the annexe would have control over its own utilities, although that is not essential. On a £2 million property, the saving for a buyer is over £60,000, so well worth considering.
Do not just assume that buying a residential property to knock down means you are acquiring residential property. If it was uninhabitable at the time of acquisition, then it may be possible to treat the acquisition as a non-residential property, but make sure you have supporting evidence as to why you have treated it in that way.
If you are buying a homeowner’s garden to develop in, that will be considered residential but, because no dwelling exists on it, the transaction will not be subject to the additional 3% rate.
The above is merely referring to SDLT that applies in England and Northern Ireland. You also need to consider the different rates, bands and legislation that apply in Scotland with land and buildings transaction tax and in Wales, with land transaction tax. Whilst broadly similar in nature, they do have some nuances, so need to be considered in detail.
This article is only just the tip of the SDLT iceberg and there are so many other traps and planning opportunities available when acquiring property. Our specialist Property and Construction team can support you in staying ahead of the changes, whilst helping you secure your market position. For more information or further tailored advice, please contact Partner, Nick Haines, at nick.haines@hazlewoods.co.uk or call 01242 237661.