Stamp duty in the spotlight, but what do developers need to know?

Hillier Hopkins LLP

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The Stamp Duty Land Tax (SDLT) holiday has certainly caught the attention of house buyers, with many taking advantage to buy or sell residential property. SDLT also affects property developers, investors and construction companies involved in property transactions.

But, says our expert Natasha Heron, there are valuable reliefs and exemptions that property buyers often overlook.

SDLT arises on most residential property transactions, with buyers facing rates of up to 15% on the top slice of their purchases. There are four methods buyers should consider when purchasing a property to ensure they do not overpay on SDLT.

Higher rate charge

The higher rate charge is applicable to residential properties with a 3% liability against the purchase price when buying multiple or investment properties. For developers acquiring multiple properties that can mean significant additional cost.

Private buyers may be able to avoid the 3% surcharge if the home being purchased is to be their principle private residence. However, companies acquiring residential property are automatically caught unless they are purchasing properties with both residential and commercial elements “mixed-use” or purely commercial buildings.

Mixed-use

These properties offer the widest scope to reduce liabilities. If any aspect of the purchase contains a commercial element the whole purchase is ‘tainted’ and can benefit from the lower non-residential rates.

The scope for qualification is reasonably wide including shops with flats above, a home with some commercial element (we have secured reliefs where part of a home was being used as a pet grooming business and another as a dentist practice), grazing land, and significant solar installations.

Multiple dwellings relief

This relief usually provides the most significant savings especially when combined with the SDLT holiday rates. It is potentially applicable when more than one dwelling is being purchased.

The mechanism of relief is quite simple: SDLT is not paid on the overall purchase price but on the price divided by the number of properties acquired, regardless of their size or value. With SDLT calculated on each individual property, the question to be asked is whether more than one property was purchased?

It is entirely possible that an annex, granny flat or converted garage be treated as multiple dwellings.

As with any relief there are a number of criteria that must be met to ensure your additional property qualifies. These include whether the facilities of any additional property are sufficient and independent to the main house.

Uninhabited property

Uninhabited property may also qualify for lower rates of SDLT. To qualify, a property must be a considerable state of disrepair. There is no hard and fast rule to determine whether a property is uninhabitable but a good place to start it to look at the survey, whether the kitchen and bathroom facilities are present and in a workable state and whether a mortgage can be obtained.

SDLT rates are likely to change in 2021, with new rates to be applied to UK non-residents from April. There is still a window of opportunity for developers acquiring property to act.

SDLT is a specialist area and advice should always be obtained before submitting a claim. Get in contact with Natasha Heron on natasha.heron@hhllp.co.uk or Meeten Nathwani on  meeten.nathwani@hhllp.co.uk.

As featured in All Things Business March edition.

Do you need extra information?
Natasha Heron

Natasha is a member of the ICAEW as a qualified auditor and the Chartered Institute of Taxation, specialising in indirect taxes. Natasha has developed a specialism as an adviser on the Stamp Duty Land Tax implications of property transactions.

Contact Natasha at Natasha.Heron@hhllp.co.uk or on 01923 634460