Stamp Duty Land Tax (SDLT) replaced stamp duty on land transactions in 2003 and can be complicated for agricultural estates. The SDLT rates in England vary for residential (up to 12%) and non-residential properties (up to 5%). In addition, a higher rate of a further 3% applies to most purchases of additional residential properties costing more than £40,000, such as second homes and buy-to-let properties since 1 April 2016. It is therefore important to know what counts as “residential” for SDLT purposes:
Definitions are key here. “Residential property” means:
- A building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use, and
- Land that is or forms part of the garden or grounds of a building within (a) (including any building or structure on such land), or
- An interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b);
“Non-residential property” means any property that is not residential property.
Undeveloped land is essentially non-residential but may be residential property if a residential building is being built on it. So, if a developer buys part of a garden without the house, the garden does not count as a “dwelling” and is liable at the non-residential Stamp Duty Land Tax – stop and think before you buy, or sell rates with no 3% surcharge.
A “mixed-use property”, such as a purchase from a seller of his house and a field which has been used for farming, is liable at the non-residential rates. So the purchase of a farm estate including a farmhouse and cottages would not normally be liable to the residential rates or the 3% higher rate.
However, there are circumstances where it is better to choose residential rates. This is because the purchaser of more than one residential property (e.g. some farmworkers’ cottages) may be able to claim “multiple dwellings relief”. This relief can reduce the rate of SDLT to a minimum of 1% if more than one residence is bought and is calculated on the average price for each dwelling.
There are also special rules for partnerships on transfers of farmland into, within and out of partnerships. Broadly, SDLT can be avoided or reduced if all or some of the partners are closely related.
Note that the SDLT rate for companies purchasing residential properties can be even higher (up to 15%) in certain circumstances.
Different deal structures and lottings can therefore significantly affect a buyer’s SDLT position. If the seller can accommodate a change that reduces SDLT, perhaps a price increase can be agreed. Do contact us for advice, whether you’re buying or selling.