Stamp Duty Land Tax EXEMPTIONS Property Investors & Developers Need to Know About!

Stamp Duty Land Tax, commonly referred to as SDLT, represents a tax incurred during the property acquisition process for development purposes. SDLT comprises two distinct types:

Residential Use Stamp Duty: Residential properties, which are used for people to live in will incur a scaled SDLT charge over £250,000

Up to £125,000	Zero
From £125,001 to £250,000	0% (2% before the mini budget announcement)
From £250,001 to £925,000	5%
From £925,001 to £1.5m	10%
Over £1.5m	12%

UK property developers intending to purchase residential properties should take note of a 3% Stamp Duty surcharge applicable to residential properties exceeding £40,000. The 3% Stamp Duty for second homes is levied on the total property value.

Non Residential Stamp Duty: Non-residential or commercial properties have a lower rate of SDLT. This applies to shops, restaurants, warehouses, offices etc

Up to £150,000	Zero
Over £150,000 to £250,000	1%
Over £250,000 to £500,000	3%
Over £500,000	4%

SDLT can be a significant expense for property investors and developers. However, by understanding and correctly applying the relevant tax reliefs, it is possible to significantly reduce the amount of SDLT that needs to be paid.

Stamp Duty for Non-Residents

From 1st April 2021, a 2% stamp duty surcharge was introduced for overseas buyers on the purchase of residential property in England and Northern Ireland.

The surcharge applies to non-resident buyers regardless of the type of buyer (e.g. company or individual) subject to very few exceptions for collective investment vehicles such as REITs.

The surcharge is in addition to the existing 3% stamp duty surcharge on purchases of “additional” dwellings such as buy-to-lets and second homes, the flat 15% stamp duty rate on purchases of dwellings worth more than £500,000 by companies acting as “envelopes” and the existing stamp duty rates for UK home buyers.

Uninhabitable Properties

When acquiring abandoned or uninhabitable properties, the purchaser might be exempt from SDLT or eligible for a tax refund. HMRC evaluates SDLT based on the classification of residential and non-residential properties. Given that an abandoned or uninhabitable structure is not considered “suitable for use as a dwelling,” the purchase of such properties is subject to non-residential rates.

There are several reasons why properties may be abandoned or left vacant, such as the owner’s death leading to neglect. Common indicators of a vacant property include:

• Structural deterioration, evident through holes in the roof or walls, broken windows, and other damage.
• Boarded-up windows and doors or those covered with metal screens.
• Absence of any occupants within the building.
• Presence of pests and rodents on the property.
• Neglected and overgrown grounds.
• Deterioration of stairs and other structural elements.

Abandoned or uninhabitable properties in a state of disrepair pose a threat to the health and safety of occupants, risking bodily harm or injury and impeding the full utilisation of the property. Renovating such properties comes with a substantial cost, as extensive repairs are often required, encompassing issues like internal plumbing, roof leaks, structural failures, and problems related to plant growth, fungus, or rodent infestations within the building.

Acquisition by property trader from an individual where the chain of transactions breaks down

`Chain-breaking’ purchases refer to acquisitions made by a property trader to facilitate an individual’s completion of a home purchase when the original chain has collapsed, and the individual’s home sale has fallen through.

If a property trader steps in to restore a property chain which has been broken, 100% relief of SDLT may be available to that trader, provided:

• The individual lived in the property as their only or main residence within the last two years.
• The property trader is acquiring the property to facilitate the new home purchase.
• The individual intends to make the new property their only or main residence.
• The land accompanying the property does not exceed 0.5 hectares.

Acquisition by property trader from personal representatives

This addresses a situation in which a property developer buys a dwelling from personal representatives. The transaction becomes exempt from SDLT if the following conditions are satisfied:

• The purchase is part of a business involving the acquisition of dwellings from personal representatives.
• The deceased individual occupied the dwelling as their main or only residence at some point in the two years leading up to their death.
• The acquired land area does not exceed the permitted limit.

Buying a property limited company, not individual properties

If you are purchasing into shares of a company, you are looking at a different rate with Stamp Duty at 0.5%, considerably less than the regular scaled SDLT rates plus the extra 3% surcharge.

If you’re in the market for properties, make sure to consider purchasing the company that owns them. This way, you can leverage the varying levels of stamp duty to your advantage but make sure you speak with an expert accountant and solicitor first as there are other taxes to pay and the costs of buying a company need to be considered.  Generally you need to be looking at buying higher value properties or higher value properties for this to be worthwhile.

Once you’ve found a company for acquisition, the next step is to either buy it under your name or incorporate it into your group of companies. To facilitate the transfer of ownership, you’ll need to fill out a stock transfer form.

Empty Properties

If the property being purchased has been empty for 2 or more years there will be no stamp duty to pay on the purchase.  This is to incentivise bringing empty property back to the market.

Multiple dwellings relief

Multiple dwellings relief legislation defines a dwelling as:

• A building or part of the building which is suitable for use as a single dwelling or is in the process of being constructed or adapted to such use;
• Land that is to be occupied or enjoyed with a dwelling, such as garden or grounds;
• Land that subsists (or will subsist) for the benefit of a dwelling; and
• Any interest in a building or part of a building which is to be constructed or adapted for such use as a single dwelling, construction of adaptation of which has not yet begun where that interest is included in a substantially performed contract.

MDR, introduced by HMRC, is a tax relief aimed at lowering barriers to investing in residential property. This relief comes into play when the transaction involves a minimum of two dwellings.

When claiming MDR, the SDLT rate applicable to the purchase price linked to the dwellings is determined by dividing the price by the number of dwellings.

The relief is not applicable to the transfer of a freehold reversion or head lease when a dwelling possesses a lease term of 21 years or more. For such freehold reversions, head leases, or any non-residential property involved in the transaction, HMRC applies the standard rate of tax without any relief.

Summary

Breaking down and figuring out SDLT becomes a crucial aspect for property investors and developers. The variations in rates for residential and non-residential properties and the exemptions for specific transactions underscore the complexity of SDLT. Property developers can significantly mitigate expenses by strategically applying relevant tax reliefs, such as Multiple Dwellings Relief (MDR) and exemptions for acquisitions from personal representatives or in `chain-breaking’ scenarios.

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