Stamp duty land tax rates and their application to garden land
27 November 2019 by Keeley Miller
The stamp duty regime was overhauled in 2003 and stamp duty land tax (‘SDLT’) was introduced. Successive governments have tinkered with the provisions and several Finance Acts later; the SDLT rules are anything but clear. By way of an example; a company (referred to in the legislation as a non-natural person) wishes to acquire a plot of bare land for £190,000, with a view to developing the land and adding dwellings on the plot for future sale.
In general, bare land is classified as non-residential land and will be subject to stamp duty land tax at the commercial rate. In this scenario the SDLT liability is £800. However, if the land to be purchased forms part of the garden or grounds of a dwelling, stamp duty land tax is payable at the residential rate which in this scenario gives rise to a tax liability of £1,300.
If the company buys a plot of garden land from a dwelling and pays SDLT at the residential rate they may subsequently sell the plot without having carried out any development at all and the subsequent buyer will pay SDLT at the commercial rate because the use of the land immediately prior to their purchase was as trading stock and not associated with a dwelling.
Non-natural persons pay a higher rate of stamp duty land tax on any purchase of a dwelling over £40,000. The higher rate is a 3% surcharge in addition to the residential stamp duty land tax rate. If the purchase price is in excess of £500,000 the non-natural person is liable to pay stamp duty land tax at the super rate of 15%.
Fortunately for our non-natural client company purchasing a piece of bare land for £190,000, the surcharge does not apply because HMRC considers the higher rate of SDLT only applies when the acquisition of the land involves a dwelling. If there was a dwelling in the course of construction on the land then this would be considered to fall within the definition of residential property and would therefore be subject to the higher rate surcharge (because the buyer is a company) and liability to stamp duty land tax in those circumstances is due in the sum of £7,000.
The stamp duty land tax rates vary for the same parcel of land depending upon the nature of the use of the land and the type of buyer. We work with a number of accountants who are experts in the field of SDLT who can provide bespoke advice in complex or non-standard transactions. For expert legal advice in connection with any property acquisition contact Fisher Jones Greenwood – call 01206 700113 or email [email protected].