From 6 April 2011 the rate of stamp duty land tax (SDLT) applicable to acquisitions of residential property will increase to 5% where the purchase price (together with other chargeable consideration) exceeds £1,000,000.
Will this new rate apply to the acquisition of land for residential development or where proposed development sites already have houses on them?
Only if the land acquired consists entirely of residential property. The key issue in determining whether or not land is residential property is the character of the land rather than how it will be used by the purchaser.
The new 5% rate of SDLT
The new 5% rate will apply to acquisitions of residential property where the effective date is on or after 6 April 2011. The effective date is usually completion. However, it can be accelerated if contracts have been exchanged and the purchaser either pays a substantial amount of the purchase price or takes possession of the whole, or substantially the whole, of the property.
The new rate will not apply to acquisitions of residential property that complete on or after 6 April 2011 where the acquisition has been made pursuant to a contract entered into before 25 March 2010. This is provided that (on or after 25 March 2010) the contract has not been varied or assigned and the transaction has not been effected in consequence of the exercise of an option, sub-sale or other transaction enabling a person other than the purchaser under the contract to call for a conveyance.
The new rate will only apply if the land that is being acquired (under one bargain) consists entirely of residential property. Where the land is, in part, residential and, in part, non-residential, the new rate will not apply at all (i.e. there is no apportionment).
Land will be residential if it is:
- a building or buildings; or
- land that forms part of the garden or grounds of such a building or buildings, that, at the effective date (usually completion but see above) of the transaction, is used, or is suitable for use, as a dwelling or less than six dwellings.
Land will also be residential if it is in the course of construction of a building for use as a dwelling or less than six dwellings (see below).
Use at the effective date overrides any past or intended future use. If a building is not in use at the effective date but its last use was as a dwelling then it will be treated as a dwelling unless evidence can be produced to the contrary.
Certain buildings are specifically residential for these purposes, namely: residential accommodation for school pupils, students (but not halls of residence) and members of the armed forces and certain institutions.
Certain buildings are specifically non-residential for these purposes, namely: student halls of residence, children's homes, homes for certain persons in need of care, hospitals and hospices, prisons, hotels and inns. In addition, a single transaction involving six or more dwellings is non-residential.
Examples of acquisitions of residential property:
- an acquisition of the end portion of a house's garden; and
- an acquisition of a single vacant house where the developer intends to demolish the house before commencing development.
Examples of acquisitions of non-residential property:
- an off-plan acquisition of six flats by an investor landlord;
- an acquisition of a site for development where the site has three houses and a shop located on it; and
- an acquisition of farm land where there is a farm house on the site.
Of itself, an acquisition of land for residential development will not mean that the land is residential and therefore liable to the new 5% rate of SDLT. Provided that the development site is not an existing dwelling's garden or grounds, bare development sites will not be liable to the new 5% rate of SDLT. This is irrespective of the use to which the site is to be put.