Stamp Duty Land Tax (SDLT) – Rule change and an update on what qualifies as a ‘residential dwelling’

Changes to SDLT rules continue to challenge both purchasers and solicitors alike.

Rule Change

From 1 March 2019, the deadline for submitting an SDLT return and payment was shortened from 30 days following the ‘effective date’ of the transaction to just 14 days. It is therefore now even more important to ensure that your solicitor has all of the details and funds for the filing of your SDLT return as soon as possible following completion of your transaction.

Failure to submit the return and/or make the payment in time will incur a £100 penalty if the return/payment follows within three months, and £200 if the return/payment is delayed longer than three months.

Update on what qualifies as a ‘residential dwelling’

SDLT is payable in two sets of rates, residential rates and non-residential rates; the latter including ‘mixed-use’ properties. We also know that a 3% surcharge is imposed where a party is purchasing a residential property in addition to their main residence but that this surcharge does not apply to non-residential property.

The distinction of whether or not a property is a ‘residential dwelling’ can therefore be financially significant. For example, a second residential property costing £500,000 will incur an SDLT charge of £30,000 whilst a non-residential property of the same value will incur a charge of £14,500.

A question therefore emerged in the world of property development: which rates apply to dilapidated houses which are being purchased with the sole intention of demolishing/renovating them to make them habitable? A recent case has provided some guidance on these anomalies.

A couple purchased a derelict bungalow as a buy-to-let investment. The property was riddled with asbestos and had no central heating. The nominal SDLT charge of £1,500 was paid and the couple demolished and rebuilt the property. HMRC argued that a property capable of use as a residential dwelling in future should be subject to residential rates and so £7,500 should have been paid. The tax tribunal disagreed and stated that residential rates and the surcharge should only apply if the property was immediately suitable for habitation.

This decision is encouraging for developers but care needs to be taken (and specialist advice sought where appropriate) on whether or not the state of a building is such that it is eligible for non-residential rates of SDLT.

Sam Read is a solicitor in the property department at Barker Gotelee Solicitors in Suffolk.

This article first appeared in the East Anglian Daily Times 30th March 2019.

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