SDLT on residential property purchases for companies

Published by Jo White on 30 October 2019

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Stamp Duty Land Tax (“SDLT”) can be very expensive. If no reliefs are available, a company purchasing a dwelling worth more than £500,000 will have to pay SDLT at a special 15% rate.

This special rate was designed to discourage the “enveloping” of high value residential property in a company; it was not designed to catch a genuine property rental or development business – although unfortunately it sometimes can. If somebody connected with a purchasing company is allowed to occupy a property – even if very briefly, the special 15% rate will apply. This can include where the connected person is paying full market rent or staying there to help with refurbishment.

Let us assume that the special 15% rate does not apply to a given property purchase. SDLT rates on the purchase of residential property by a company are still rather high. What other reliefs are available? Thankfully, the answer is many; it would take most of the rest of this article simply to list them, so I have focussed on the two most common issues we see.

1. Is it really residential property?

Is there any basis on which a given property can be treated as non-residential or mixed use? If there is, the SDLT payable may be significantly lower. The top rate of SDLT for non-residential property is only 5%, as opposed to 15% for residential property.

Residential property means a building that is used or suitable for use as a dwelling. When a property is truly derelict, it is not suitable for use as a dwelling. When six or more residential properties are purchased in a single transaction, the purchase can be treated as non-residential. When a purchase includes a residential and non-residential element it may be possible to treat it as a mixed use purchase, which attracts the same SDLT rates as a non-residential purchase.

In most cases the SDLT payable on a given transaction is likely to be lower, potentially significantly, if the property is non-residential for SDLT purposes.

**2. Is multiple dwellings relief available? **

A multiple dwellings relief claim can be made when a transaction involves two or more dwellings.

It will therefore be necessary to determine the number of dwellings. There are certain facilities which would be expected in each dwelling, for example a sleeping area, living area, bathroom, kitchen and independent access, either from the outside, or into a common area.

Once the number of dwellings is established, SDLT can be calculated according to the average value of each dwelling, and then multiplied by the number of these dwellings. This is likely to significantly reduce the SDLT payable when the properties are of significantly different value.

SDLT can be complex, and the deadline for filing a SDLT Return and paying any tax due is only 14 days from the effective date of a transaction. It is therefore incredibly important that the availability of any reliefs is considered before any transaction takes place.

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