Stamp Duty Land Tax on Development Land Purchases

Simon Whittaker, Finance Director, looks at which Stamp Duty calculation should be used when purchasing land for residential development.

Recently we were asked whether the purchase of land for the purpose of residential development would be subject to the new residential scale of Stamp Duty Land Tax (SDLT) or whether it would be seen as a commercial transaction subject to the “old style” SDLT. On investigation it is apparent that this question is relevant to ALL purchases of land for development since all could potentially be either rate of SDLT!

The basic rule is that 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) and the transaction is subject to SDLT at commercial rates. This applies whatever type of property is to be built on the land since use at the effective date of purchase overrides any past or intended future use.

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) 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).

Examples of purchases of residential property:

  • the purchase 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 purchase 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.

Note - a single transaction involving six or more dwellings is non-residential.

This is a complex area with various special exemptions – so if in doubt take professional advice!

Once you have worked out what rate of stamp duty you will be subject to, why not try our stamp duty calculators to work out how much you will be paying.

SDLT calculator for residential purchases

SDLT calculator for non-residential purchases