SDLT and non residential property purchases – Has HMRC changed their interpretation of the rules?



Stamp duty land tax (SDLT) is a tax paid by the purchaser on buying land or property within England and Northern Ireland. Similar rules operate in Scotland and Wales. There are set SDLT rates which are applied to the total consideration paid depending upon the characteristics of the land or property being acquired.

In the majority of cases the calculation of SDLT is relatively straightforward however various changes introduced over the past few years have complicated the position on certain transactions. Finance Act 2016 introduced a 3% surcharge on SDLT rates where an interest in an additional residential property is being acquired. This higher rate should not apply if the ‘new’ property is replacing the main residence and the ‘old’ residence has already been sold or is sold on the same day. Even if the ‘old’ main residence is still held, provided it is sold within three years the surcharge element should be refunded.

The introduction of this additional residential rate has meant that the difference in SDLT liabilities between a residential and non residential purchase can be significant and there is a major advantage to be gained by claiming the purchase is of a ‘non residential’ property. So what falls to be classified as ‘residential’ and ‘non residential’?

A residential property is defined under section 116, Finance Act 2003 as:

– A building that is used or suitable for use as a dwelling or is being constructed or adapted for such use; and
– Land that is or forms part of the garden or grounds of such a building ( 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 either of the above.
– Non residential property means any property that is not ‘residential’ property.

Generally, garden or grounds is considered to include land which is needed for the reasonable enjoyment of the dwelling having regard to the size and nature of that dwelling. HMRCs guidance in the SDLT manual at section 30030 supports this approach, confirming that this is usually a question of fact depending upon the individual circumstances of each case.

In view of the above and in accordance with what was generally accepted practice, where a dwelling was purchased and it had land that was in excess of that required for the reasonable enjoyment, the excess land was regarded as ‘non residential’. This meant that the transaction as a whole was treated as being one of mixed use and the lower ‘non-residential’ rates of SDLT would be chargeable.

So what is the issue now? Well, there seems to have been a clear shift in how HMRC interpret the definition of ‘residential’ property since the introduction of the additional rate and there has been much more scrutiny of any claims of mixed use purchases.

Following a meeting in 2018 between HMRC and the professional bodies, HMRC clarified their ‘current’ view and the notes which were subsequently published state that where there is a commercial use of property of land that would otherwise form part of the garden or grounds the question is whether an identifiable use precludes enjoyment of that part. For example, HMRC have confirmed that they believe a paddock that is not used for anything else remains available for the enjoyment of the dwelling but a formal arrangement involving the grant of a lease or a licence to graze land is more likely to prevent the owner’s enjoyment of that land. It is the actual use of the land at the date of purchase that is relevant in these circumstances not the past or future intended use.

This seems to imply that HMRC’s historic approach of just looking at whether or not the land is required for reasonable enjoyment no longer appears to be relevant and the scope of what may fall to be classified as ‘non residential’ is now much narrower. Careful consideration of any acquisitions that may fall in this category will now be needed but uncertainties will continue to exist. Consideration should be given to making additional disclosures for any SDLT claims for non residential rates should there be any concerns.

For advice on any SDLT matters please contact the Wells Advisory team on 01892 507288 or via email