What is residential property for stamp duty land tax (SDLT) purposes

This question has partly been considered when looking at the definition for ATED purposes.  As you will see from previous articles the question appears innocent enough, however each tax carries different variants that include/ exclude certain types of land and building.  Complications can further arise on when the 3% surcharge applies and what transaction is included.  SDLT has always had different bands/ rates for land/ buildings that are residential or not.  In theory SDLT should provide a clear and definitive answer to this question.

A residential property is defined as:

  • a building, or part of a building, that is used or suitable for use as a single dwelling or is in the process of being constructed or adapted for such use.  The revenue manuals assist with defining use at the effective date and suitable for use, and
  • any land that is or forms part of the gardens or grounds of a building, or
  • an interest in or right over land that subsists for the benefit of a building in above situations.

Where you have a transaction that involves the acquisition of 6 or more dwellings it will be treated as non-residential property.

As you will see below, the legislation does give you some specific buildings that would be treated as a dwelling or not.  What is included as a dwelling is less favourable under ATED and SDLT than CGT (see our earlier articles).

A building used in the following ways will be treated as treated as a dwelling:

  • residential accommodation for school pupils;
  • residential accommodation for students, other than accommodation treated as not a dwelling (see below);
  • residential accommodation for members of the armed forces;
  • an institution that is the sole or main residence of at least 90% of its residence and does not fall within the below list.

A building used in the following ways will not be treated as a dwelling:

  • a home or other institution providing residential accommodation for children;
  • a hall of residence for students in further or higher education;
  • a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder;
  • a hospital or hospice;
  • a prison or similar establishment;
  • a hotel or inn or similar establishment.

Based on the above extract from the tax legislation it is clear that every transaction would need to be reviewed carefully and the use or suitability would need to be considered based on facts.  SDLTM20076 states that:

‘Use at the effective date of the transaction overrides any past or intended future uses for this purpose. If a building is not in use at the effective date but its last use was as a dwelling, it will be taken to be ‘suitable for use as a dwelling’ and treated as residential property, unless evidence is produced to the contrary.

Undeveloped land is essentially non-residential but may be residential property if, at the effective date, a residential building is being built on it. Where, at the effective date, an existing building is being adapted or marketed for, or restored to, domestic use, it is treated as residential property.’

On 4 July 2018, the CIOT and the Stamp Practitioners Group held a meeting with HMRC, the Welsh Revenue Authority and Revenue Scotland to try to clarify HMRC’s view on the meaning of residential property for SDLT purposes.  As an example of discussions held, the separate sale of a garden is a residential transaction regardless of whether the garden has been fenced off or not.  A subsequent sale of the garden by the buyer may be non-residential.  However, this differs from HMRC’s view for the purposes of the supplemental 3% SDLT charge because HMRC considers that the separate sale of a garden is not subject to the supplemental charge.

In respect of ‘in the process of being constructed’ HMRC confirmed in the meeting that there is no express ‘golden brick’ test or rule of thumb for SDLT.  There needs to be ‘more than a hole in the ground’.  HMRC’s guidance on this aspect is under review.

For further assistance, please contact Reshma Johar on 0845 4900 509 or contact us on taxdesk@gabelletax.com.